[X] Registration Statement under the Securities Act of 1933
[X] Pre-Effective Amendment No. 2
[ ] Post-Effective Amendment No.
and/or
[X] Registration Statement under the Investment
Company Act of 1940
[X] Amendment No. 33
One Corporate Center
Rye, New York 10580-1422
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 422-3554
Bruce N. Alpert
The Gabelli Equity Trust Inc.
One Corporate Center
Rye, New York 10580-1422
(914) 921-5100 (Name and Address of Agent for Service)
________________________
Copies to:
Richard T. Prins, Esq. James McKee, Esq. Cynthia G. Cobden, Esq.
Skadden, Arps, Slate, The Gabelli Global Simpson Thacher &
Meagher & Flom LLP Equity Trust Inc. Bartlett LLP
Four Times Square One Corporate Center 425 Lexington Avenue
New York, New York 10036 Rye, New York 10580-1422 New York, New York 10017
(212) 735-3000 (914) 921-5100 (212) 455-2000
________________________
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Approximate date of proposed public offering: As soon as practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as amended, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective
(check appropriate box)
[X] When declared effective pursuant to section 8(c).
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date
for a previously filed [post-effective amendment] [registration
statement].
[ ] This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is [ ].
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
==========================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate
Amount Being Offering Price Offering Amount of
Title of Securities Registered Per Share Price (1) Registration Fee (2)
------------------- ---------- --------- --------- ----------------
___% Series D Cumulative 3,000,000 Shares $25 $75,000,000 $5,945.50
Preferred Stock
Series E Auction Rate Cumulative 2,000 Shares $25,000 $50,000,000 $3,815.00
Preferred Stock
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $322 previously paid
________________________
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
==========================================================================================================
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CROSS-REFERENCE SHEET
N-2 Item Number Location in Part A (Caption)
-------------------------------------------------------------------------------------------------------------------
PART A
1. Outside Front Cover................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Page............................................. Outside FrontCover Page;
Inside Front Cover Page
3. Fee Table and Synopsis............................. Not Applicable
4. Financial Highlights............................... Financial Highlights
5. Plan of Distribution............................... Outside Front Cover Page; Summary;
Underwriting
6. Selling Shareholders............................... Not Applicable
7. Use of Proceeds.................................... Use of Proceeds; Investment Objectives and
Policies
8. General Description of the
Registrant....................................... Outside Front Cover Page; Summary; The Fund;
Investment Objectives and Policies; Risk Factors
& Special Considerations; How the Fund
Manages Risk; Description of Series D Preferred
and Series E Auction Rate Preferred; Anti-
takeover Provisions of the Charter and By-Laws
9. Management......................................... Outside Front Cover Page; Summary;
Management of the Fund; Custodian, Transfer
Agent, Auction Agent and Dividend-Disbursing
Agent
10. Capital Stock, Long-Term Debt,
and Other Securities............................. Outside Front Cover Page; Summary; Investment
Objectives and Policies; Description of Series D
Preferred and Series E Auction Rate Preferred;
Description of Capital Stock and Other Securities;
Taxation; Anti-takeover Provisions of the Charter
and By-Laws
iii
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11. Defaults and Arrears on Senior
Securities....................................... Not Applicable
12. Legal Proceedings.................................. Not Applicable
13. Table of Contents of the Statement
of Additional Information........................ Table of Contents of the Statement of Additional
Information
PART B Location in Statement of
Additional Information
-------------------------------------------------------------------------------------------------------------------
14. Cover Page......................................... Outside Front Cover Page
15. Table of Contents.................................. Outside Front Cover Page
16. General Information and History.................... The Fund
17. Investment Objectives and
Policies......................................... Investment Objectives and Policies;
Investment Restrictions
18. Management......................................... Management of the Fund
19. Control Persons and Principal
Holders of Securities............................ Management of the Fund; Beneficial Owners
20. Investment Advisory and Other
Services......................................... Management of the Fund
21. Brokerage Allocation and Other
Practices........................................ Portfolio Transactions
22. Tax Status......................................... Taxation
23. Financial Statements............................... Financial Statements
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PART C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 1, 2003
PROSPECTUS $125,000,000 [GABELLI LOGO]
The Gabelli
Equity Trust Inc.
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3,000,000 Shares, [__]% Series D Cumulative Preferred Stock
(Liquidation Preference $25 per Share)
2,000 Shares, Series E Auction Rate Cumulative Preferred Stock
(Liquidation Preference $25,000 per Share)
The Gabelli Equity Trust Inc., or the Fund, is a closed-end, non-diversified management investment company that has a primary investment objective of long-term growth of capital and a secondary investment objective of income. The Fund's investments are selected by its Investment Adviser, Gabelli Funds, LLC. The Fund invests primarily in equity securities including common stock, preferred stock, convertible or exchangeable securities and warrants and rights to purchase such securities. We cannot assure you that the Fund's objectives will be achieved.
This prospectus describes shares of the Fund's [__]% Series D Cumulative Preferred Stock (the "Series D Preferred"), liquidation preference $25 per share. Dividends on shares of the Series D Preferred are cumulative from such original issue date at the annual rate of [__]% of the liquidation preference of $25 per share and are payable on March 26, June 26, September 26 and December 26 in each year, commencing on [__], 2003.
This prospectus also describes shares of the Fund's Series E Auction Rate Cumulative Preferred Stock (the "Series E Auction Rate Preferred"), liquidation preference $25,000 per share. The dividend rate for the Series E Auction Rate Preferred will vary from dividend period to dividend period. The annual dividend rate for the initial dividend period for the Series E Auction Rate Preferred will be [__]% of the liquidation preference of $25,000 per share. The initial dividend period is from the date of issuance through [__], 2003. For subsequent dividend periods, the Series E Auction Rate Preferred will pay dividends based on a rate set at auction, usually held weekly.
The Fund offers by this prospectus, in the aggregate, $125 million of preferred stock of either Series D Preferred, or Series E Auction Rate Preferred, or a combination of both series.
Investing in our Series D Preferred or Series E Auction Rate Preferred involves risks. See "Risk Factors and Special Considerations" beginning on page 31.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Series E
Series D Auction Rate
Preferred Preferred
Per Share Total Per Share Total
--------- ----- --------- -----
Public Offering Price(1) $ 25.00 $ $ 25,000 $
Underwriting Discount(2) $ $ $ $
Proceeds to the Fund
(before expenses)(3) $ $ $ $
|
Citigroup Merrill Lynch & Co.
Gabelli & Company, Inc.
[__], 2003
|
(Continued from previous page)
The shares of Series D Preferred and/or Series E Auction Rate Preferred being offered by this prospectus are being offered by the underwriters listed in this prospectus, subject to prior sale, when, as and if accepted by them and subject to certain conditions. The Fund expects that delivery of any shares of Series D Preferred or Series E Auction Rate Preferred will be made in book-entry form through the facilities of The Depository Trust Company ("DTC") on or about [__], 2003.
Application will be made to list the Series D Preferred on the New York Stock Exchange. If offered, trading of the Series D Preferred on the New York Stock Exchange is expected to commence within 30 days of the date of this prospectus. Prior to this offering, there has been no public market for the Series D Preferred. See "Underwriting."
The Series E Auction Rate Preferred will not be listed on an exchange. Investors may only buy or sell Series E Auction Rate Preferred through an order placed at an auction with or through a broker-dealer in accordance with the procedures specified in this prospectus or in a secondary market maintained by certain broker-dealers should those broker-dealers decide to maintain a secondary market. Broker-dealers are not required to maintain a secondary market in the Series E Auction Rate Preferred and a secondary market may not provide you with liquidity.
The net proceeds of the offering, which are expected to be [__], will be invested in accordance with the Fund's investment objectives and policies. See "Investment Objectives and Policies" beginning on page 26.
The Fund expects that dividends paid on the Series D Preferred and
Series E Auction Rate Preferred will consist of (i) long- term capital gain
(gain from the sale of a capital asset held longer than 12 months), (ii)
qualified dividend income (income from domestic and certain foreign
corporations), and (iii) investment company taxable income (other than
qualified dividend income, including short-term capital gain and interest
income and non-qualified dividend income). For individuals, the maximum
federal income tax rate on long-term capital gains is currently 15%, on
qualified dividend income is 15%, and on other types of income is 35%. These
tax rates are scheduled to apply through 2008. Over the past three years,
approximately 89% of the Fund's distributions to stockholders consisted of
long-term capital gain and, of the remaining 11% distributed to stockholders,
68% would have, under the current tax provisions, constituted qualified
dividend income taxable at the 15% rate. Over the last one year, approximately
93% of the Fund's distributions to stockholders consisted of long-term capital
gain and, of the remaining 7% distributed to stockholders, approximately 99%
would have, under the current tax provisions, constituted qualified dividend
income taxable at the 15% rate.We cannot assure you, however, as to what
percentage of the dividends paid on the Series D Preferred or Series E Auction
Rate Preferred will consist of long-term capital gains and qualified dividend
income, which are currently taxed at lower rates for individuals than ordinary
income. For a more detailed discussion, see "Taxation."
Neither the Series D Preferred nor the Series E Auction Rate Preferred may be issued unless it is rated "Aaa" by Moody's. In addition, the Series E Auction Rate Preferred may not be issued unless it is also rated "AAA" by S&P. In order to keep these ratings, the Fund will be required to maintain a minimum discounted asset coverage with respect to its outstanding Series D Preferred and Series E Auction Rate Preferred under guidelines established by each of Moody's and S&P. See "Description of the Series D Preferred and Series E Auction Rate Preferred -- Rating Agency Guidelines." The Fund is also required to maintain a minimum asset coverage by the Investment Company Act of 1940, as amended. If the Fund fails to maintain any of these minimum asset coverage requirements, the Fund can at its option (and in certain circumstances must) require, in accordance with its Charter and the requirements of the Investment Company Act of 1940, as amended, that some or all of its outstanding preferred stock, including the Series D Preferred and/or Series E Auction Rate Preferred, be redeemed. Otherwise, prior to [__], 2008 the Series D Preferred will be redeemable at the option of the Fund only to the extent necessary for the Fund to continue to qualify for tax treatment as a regulated investment company. Subject to certain notice and other requirements (including those set forth in Section 23(c) of the Investment Company Act of 1940, as amended), the Fund at its option may redeem (i) the Series D Preferred beginning on [__], 2008 and (ii) the Series E Auction Rate Preferred following the initial dividend period (so long as the Fund has not designated a non-call period). In the event the Fund redeems the Series D Preferred, such redemption will be for cash at a redemption price equal to $25 per share plus accumulated but unpaid dividends (whether or not earned or declared) to the date of redemption. In the event the Fund redeems the Series E Auction Rate Preferred, such redemptions will be for cash, generally at a redemption price equal to $25,000 per share plus accumulated but unpaid dividends (whether or not earned or declared), though in limited circumstances the Fund's Board of Directors may also declare a redemption premium. See "Description of Series D Preferred and Series E Auction Rate Preferred - Redemption."
This prospectus concisely sets forth important information about the Fund that you should know before deciding whether to invest in Series D Preferred or Series E Auction Rate Preferred. You should read this prospectus and retain it for future reference.
The Fund has also filed with the Securities and Exchange Commission a Statement of Additional Information, dated [__], 2003, which contains additional information about the Fund. The Statement of Additional Information is incorporated by reference in its entirety into this prospectus. You can review the table of contents of the Statement of Additional Information on page [__] of this prospectus. You may request a free copy of the Statement of Additional Information by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or calling the Fund toll-free at (800) 422-3554. You may also obtain the Statement of Additional Information as well as reports, proxy and information statements and other information regarding registrants, including the Fund, that file electronically with the Securities and Exchange Commission on the Securities and Exchange Commission's web site (http://www.sec.gov).
Certain persons participating in the offering of the Series D Preferred, in the event any is offered, may engage in transactions that stabilize, maintain or otherwise affect the market price of the Series D Preferred, including the entry of stabilizing bids, syndicate covering transactions or the imposition of penalty bids. For a description of these activities, see "Underwriting."
You should rely only on the information contained in or incorporated by reference into this prospectus. Neither the Fund nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither the Fund nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
TABLE OF CONTENTS
Page
----
Summary................................................................ 2
Financial Highlights................................................... 20
Use of Proceeds........................................................ 23
The Fund............................................................... 25
Capitalization......................................................... 26
Investment Objectives and Policies..................................... 31
Risk Factors and Special Considerations................................ 37
How the Fund Manages Risk.............................................. 38
Management of the Fund................................................. 41
Portfolio Transactions................................................. 41
Dividends and Distributions............................................ 41
Description of Series D Preferred and Series E Auction Rate Preferred.. 43
The Auction of Series E Auction Rate Preferred......................... 54
Description of Capital Stock and Other Securities...................... 57
Taxation............................................................... 59
Anti-takeover Provisions of the Charter and By-Laws.................... 61
Custodian, Transfer Agent, Auction Agent and
Dividend-Disbursing Agent..................................... 63
Underwriting........................................................... 64
Legal Matters.......................................................... 66
Experts................................................................ 66
Additional Information................................................. 67
Special Note Regarding Forward-Looking Statements...................... 67
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Table of Contents of SAI............................................... 68 Appendix A............................................................. A-1
(This page intentionally left blank)
SUMMARY
This is only a summary. You should review the more detailed information contained in this prospectus and the Statement of Additional Information, dated [__], 2003 (the "SAI").
The Fund................................ The Fund is a closed-end, non-diversified, management investment
company that has been in operation since August 21, 1986. The Fund
was incorporated in Maryland on May 20, 1986. The Fund's
outstanding shares of common stock, par value $.001 per share, are
listed and traded on the New York Stock Exchange ("NYSE"). As of
September 15, 2003, the sum of the net assets of the Fund plus the
liquidation value of the Fund's outstanding preferred stock ($295
million) was approximately $1,253 million. As of September 15, 2003,
the Fund had outstanding 136,014,878 shares of common stock,
6,600,000 shares of the 7.20% Tax Advantaged Series B Cumulative
Preferred Stock (the "Series B Preferred") and 5,200 shares of the
Series C Auction Rate Cumulative Preferred Stock (the "Series C
Auction Rate Preferred"). The Fund completed its redemption of 100%
of its outstanding 7.25% Tax Advantaged Cumulative Preferred Stock
(the "Series A Preferred") on June 17, 2003. The Series B Preferred
and the Series C Auction Rate Preferred have the same seniority with
respect to dividends and liquidation preference.
The Offering............................ The Fund offers by this prospectus, in the aggregate, $125 million
of preferred stock of either Series D Preferred or Series E Auction
Rate Preferred, or a combination of both such series. The Series D
Preferred and/or Series E Auction Rate Preferred are being offered
by Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Gabelli & Company, Inc., as underwriters.
Upon issuance, the Series D Preferred and the Series E Auction Rate
Preferred will have equal seniority with respect to dividends and
liquidation preference to the Fund's other outstanding preferred
stock. See "Description of the Series D Preferred and Series E
Auction Rate Preferred."
Series D Preferred. The Fund is offering 3,000,000 shares of Series D
Preferred, par value $.001 per share, liquidation preference of $25
per share, at a purchase price of $25 per share plus dividends, if
any, that have accumulated from the commencement date of the dividend
period during which such Series D Preferred is issued. Dividends on
the shares of Series D Preferred will accumulate from the date on
which such shares are issued. Application has been made to list the
Series D Preferred on the NYSE and it is anticipated that trading of
the Series D Preferred on the NYSE will commence within 30 days from
the date of issuance.
Series E Auction Rate Preferred. The Fund is offering 2,000 shares of
Series E Auction Rate Preferred, par value $.001 per share,
liquidation preference $25,000 per share, at a purchase price of
$25,000 per share, plus dividends, if any, that have accumulated from
the commencement date of the dividend period during which such Series
E Auction Rate
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Preferred is issued.
The Series E Auction Rate Preferred will not be listed on an
exchange. Instead, investors may buy or sell Series E Auction Rate
Preferred in an auction by submitting orders to broker-dealers that
have entered into an agreement with the auction agent and the Fund.
Generally, investors in Series D Preferred or Series E Auction Rate
Preferred will not receive certificates representing ownership of
their shares. The securities depository (The Depository Trust Company
("DTC") or any successor) or its nominee for the account of an
investor's broker-dealer will maintain record ownership of the
preferred stock in book-entry form. An investor's broker-dealer, in
turn, will maintain records of that investor's beneficial ownership
of preferred stock.
Investment Objectives
and Methodology......................... Investment Objectives. The Fund's primary investment objective is
long-term growth of capital, primarily through investment in a portfolio
of equity securities including common stock, preferred stock,
convertible or exchangeable securities and warrants and rights to
purchase such securities. Income is a secondary objective of the Fund.
No assurance can be given that the Fund will achieve its investment
objectives. See "Investment Objectives and Policies."
Investment Methodology. In selecting securities for the Fund, the
Investment Adviser normally will consider the following factors,
among others: (i) the Investment Adviser's own evaluations of the
private market value, cash flow, earnings per share and other
fundamental aspects of the underlying assets and business of the
company; (ii) the potential for capital appreciation of the
securities; (iii) the interest or dividend income generated by the
securities; (iv) the prices of the securities relative to other
comparable securities; (v) whether the securities are entitled to the
benefits of call protection or other protective covenants (e.g.,
events of acceleration or events of default for failure to comply
with certain financial ratios or to satisfy other financial covenants
or benchmarks); (vi) the existence of any anti-dilution protections
or guarantees of the security; and (vii) the diversification of the
portfolio of the Fund as to issuers. The Investment Adviser's
investment philosophy with respect to equity securities seeks to
identify securities of companies that are selling in the public
market at a discount to their private market value, which the
Investment Adviser defines as the value informed purchasers are
willing to pay to acquire assets with similar characteristics. The
Investment Adviser also normally evaluates the issuer's free cash
flow and long-term earnings trends. Finally, the Investment Adviser
looks for a catalyst - something in the company's industry or
indigenous to the company or country itself that will surface
additional value.
2
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Portfolio Contents. Although under normal market conditions at least
80% of the Fund's total assets will consist of equity securities,
when a temporary defensive posture is believed by the Investment
Adviser to be warranted, the Fund may without limitation hold cash or
invest its assets in money market instruments and repurchase
agreements in respect of those instruments. The Fund may also invest
up to 10% of the market value of its total assets during temporary
defensive periods in shares of money market mutual funds that invest
primarily in U.S. government securities and repurchase agreements in
respect of those securities, which, in the absence of applicable
exemptive relief are not affiliated with the Investment Adviser. Such
actions on the part of the Fund may adversely affect its ability to
achieve its secondary investment objective of income.
The Fund may invest up to 10% of its total assets in fixed-income
securities issued by U.S. and foreign corporations, governments and
agencies that are rated below investment grade by primary rating
services such as Standard & Poor's Ratings Services ("S&P") and
Moody's Investors Service, Inc. ("Moody's"). These high-yield,
higher-risk securities are commonly known as "junk bonds." These debt
securities are predominantly speculative and involve major risk
exposure to adverse conditions.
The Fund may invest up to 35% of its total assets in foreign
securities. Among the foreign securities in which the Fund may invest
are those issued by companies located in developing countries, which
are countries in the initial stages of their industrialization
cycles. Investing in the equity and debt markets of developing
countries involves exposure to economic structures that are generally
less diverse and less mature, and to political systems that can be
expected to have less stability, than those of developed countries.
The markets of developing countries historically have been more
volatile than the markets of the more mature economies of developed
countries, but often have provided higher rates of return to
investors. The Fund may also invest in debt securities of foreign
governments.
Dividends and Distributions............. Series D Preferred. Dividends on the Series D Preferred, at the annual
rate of [__]% of its $25 per share liquidation preference, are
cumulative from the Series D Preferred's original issue date and are
payable, when, as and if declared by the Board of Directors of the
Fund, out of funds legally available therefor, quarterly on March 26,
June 26, September 26 and December 26 in each year, commencing on
[__], 2003.
Series E Auction Rate Preferred. The holders of Series E Auction Rate
Preferred are entitled to receive cash dividends, stated at annual
rates of its $25,000 per share liquidation preference, that will vary
from dividend period to dividend period. The table below shows the
dividend rate, the dividend payment date and the number of days for
the initial dividend period on the Series E Auction Rate Preferred.
3
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Dividend
Initial Payment Date Number of
Dividend for Initial Days of Initial
Rate Dividend Period Dividend Period
---- --------------- ---------------
Series E [__]% [__], 2003 [__]
Auction Rate
Preferred.........
For subsequent dividend periods, the Series E Auction Rate Preferred
will pay dividends based on a rate set at auctions, normally held
weekly. In most instances dividends are payable weekly on the first
business day following the end of the dividend period. If the day on
which dividends otherwise would be paid is not a business day, then
dividends will be paid on the first business day that falls after the
end of the dividend period. The Fund may, subject to certain
conditions, designate special dividend periods of more (or less) than
seven days. The dividend payment date for any such special dividend
period will be set out in the notice designating the special dividend
period. Dividends on shares of Series E Auction Rate Preferred will
be cumulative from the date such shares are issued and will be paid
out of legally available funds.
In no event will the dividend rate set at auction for the Series E
Auction Rate Preferred exceed the then-maximum rate. The maximum rate
means (i) in the case of a dividend period of 184 days or less, the
applicable percentage of the "AA" Financial Composite Commercial
Paper Rate on the date of such auction determined as set forth in the
following chart based on the lower of the credit ratings assigned to
the Series E Auction Rate Preferred by Moody's and S&P or (ii) in the
case of a dividend period of longer than 184 days, the applicable
percentage of the Treasury Index Rate.
Moody's S&P Applicable
Credit Rating Credit Rating Percentage
AA3 or higher AA- or higher 150%
A3 to A1 A- to A+ 175%
Baa3 to Baa1 BBB- to BBB+ 250%
Below Baa3 Below BBB- 275%
See "Description of the Series D Preferred and Series E Auction Rate
Preferred -- Dividends on the Series E Auction Rate Preferred --
Maximum Rate." For example, calculated as of March 31, 2003 and June
30, 2003, respectively, the maximum rate for the Series E Auction
Rate Preferred (assuming a rating of "Aaa" or above by Moody's and
"AAA" or above by S&P) would have been approximately 1.82% and 1.53%
for dividend periods of 90 days, and approximately 2.48% and
4
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1.92% for dividend periods of two years.* There is no minimum
applicable rate with respect to any dividend period.
Any designation of a special dividend period will be effective only
if, among other things, proper notice has been given, the auction
immediately preceding the special dividend period was not a failed
auction and the Fund has confirmed that it has assets with an
aggregate discounted value at least equal to the Basic Maintenance
Amount (as defined in the applicable rating agency guidelines). See
"Description of the Series D Preferred and Series E Auction Rate
Preferred -- Dividends on the Series E Auction Rate Preferred" and
"The Auction of Series E Auction Rate Preferred."
Preferred Stock Dividends. Under current law, all preferred stock of
the Fund must have the same seniority as to the payment of dividends.
Accordingly, no full dividend will be declared or paid on any series
of preferred stock of the Fund for any dividend period, or part
thereof, unless full cumulative dividends due through the most recent
dividend payment dates therefor for all series of outstanding
preferred stock of the Fund are declared and paid. If full cumulative
dividends due have not been declared and paid on all outstanding
shares of preferred stock of the Fund ranking on a parity with the
Series D Preferred and/or Series E Auction Rate Preferred as to the
payment of dividends, any dividends being paid on the shares of such
preferred stock (including any outstanding Series D Preferred and
Series E Auction Rate Preferred) will be paid as nearly pro rata as
possible in proportion to the respective amounts of dividends
accumulated but unpaid on each such series of preferred stock on the
relevant dividend payment date.
In the event that for any calendar year the total distributions on
shares of the Fund's preferred stock exceed the Fund's investment
company taxable income (as that term is defined in the Internal
Revenue Code of 1986, as amended (the "Code"), determined without
regard to the deduction for dividends paid) and net capital gain
(i.e., the excess of its net realized long-term capital gain over its
net realized short-term capital loss) allocable to those shares, the
excess distributions will generally be treated as a tax-free return
of capital (to the extent of the stockholder's tax basis in his or
her shares). The amount treated as a tax-free return of capital will
reduce a stockholder's adjusted basis in his or her shares of
preferred stock, thereby increasing the stockholder's potential gain
or reducing his or her potential loss on the sale of the shares.
Common Stock. In order to allow its common stockholders to realize a
predictable, but not assured, level of cash flow and some liquidity
periodically on their investment without having to sell shares, the
Fund has adopted a policy, which may be modified at any time by its
Board -------- * Dividend periods presented for illustrative purposes
only. Actual dividend periods may be of greater or lesser duration.
___________________
* Dividend periods presented for illustrative purposes only.
Actual dividend periods may be of greater or lesser duration.
5
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of Directors, of paying distributions on its common stock of at least
10% of average quarter-end assets attributable to common stock. For
the fiscal year ending December 31, 2002, the Fund made distributions
of $0.95 per share of common stock, none of which constituted a
return of capital. The Fund has made quarterly distributions with
respect to its shares of common stock since 1987. A portion of the
returns during nine fiscal years since then have constituted a return
of capital.
Auction Procedures..................... You may buy, sell or hold Series E Auction Rate Preferred in the
auction. The following is a brief summary of the auction procedures,
which are described in more detail elsewhere in this prospectus and in
the SAI. These auction procedures are complicated, and there are
exceptions to these procedures. Many of the terms in this section have
a special meaning as set forth in this prospectus or the SAI.
The auctions determine the dividend rate for the Series E Auction
Rate Preferred, but each dividend rate will not be higher than the
then- maximum rate. See "Description of the Series D Preferred and
Series E Auction Rate Preferred -- Dividends on the Series E Auction
Rate Preferred."
If you own shares of Series E Auction Rate Preferred, you may
instruct your broker-dealer to enter one of three kinds of orders in
the auction with respect to your shares: sell, bid and hold.
If you enter a sell order, you indicate that you want to sell Series
E Auction Rate Preferred at $25,000 per share, no matter what the
next dividend period's rate will be.
If you enter a bid (or "hold at a rate") order, which must specify a
dividend rate, you indicate that you want to sell Series E Auction
Rate Preferred only if the next dividend period's rate is less than
the rate you specify.
If you enter a hold order, you indicate that you want to continue to
own Series E Auction Rate Preferred, no matter what the next dividend
period's rate will be.
You may enter different types of orders for different portions of
your Series E Auction Rate Preferred. You may also enter an order to
buy additional Series E Auction Rate Preferred. All orders must be
for whole shares. All orders you submit are irrevocable. There is a
fixed number of Series E Auction Rate Preferred shares, and the
dividend rate likely will vary from auction to auction depending on
the number of bidders, the number of shares the bidders seek to buy,
the rating of the Series E Auction Rate Preferred and general
economic conditions including then current interest rates. If you own
Series E Auction Rate Preferred and submit a bid for them higher than
the then-maximum rate, your bid will be treated as a sell order. If
you do not enter an order for a dividend period of 28 days or less,
the broker-dealer will assume that you want to continue to hold
Series E Auction Rate
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Preferred. If you fail to submit an order and the dividend period is
longer than 28 days, the broker-dealer will treat your failure to
submit a bid as a sell order.
If you do not then own Series E Auction Rate Preferred, or want to
buy more shares, you may instruct a broker-dealer to enter a bid
order to buy shares in an auction at $25,000 per share at or above
the dividend rate you specify. If you bid for shares you do not
already own at a rate higher than the then-maximum rate, your bid
will not be considered.
Broker-dealers will submit orders from existing and potential holders
of Series E Auction Rate Preferred to the auction agent. Neither the
Fund nor the auction agent will be responsible for a broker-dealer's
failure to submit orders from existing or potential holders of Series
E Auction Rate Preferred. A broker-dealer's failure to submit orders
for Series E Auction Rate Preferred held by it or its customers will
be treated in the same manner as a holder's failure to submit an
order to the broker-dealer. A broker-dealer may submit orders to the
auction agent for its own account. The Fund may not submit an order
in any auction.
After each auction for the Series E Auction Rate Preferred the
auction agent will pay to each broker-dealer, from funds provided by
the Fund, a service charge equal to, in the case of any auction
immediately preceding a dividend period of less than one year, the
product of (i) a fraction, the numerator of which is the number of
days in such dividend period and the denominator of which is 365,
times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the aggregate
number of Series E Auction Rate Preferred shares placed by such
broker-dealer at such auction or, in the case of any auction
immediately preceding a dividend period of one year or longer, a
percentage of the purchase price of the Series E Auction Rate
Preferred placed by the broker-dealers at the auction agreed to by
the Fund and the broker-dealers.
If the number of Series E Auction Rate Preferred shares subject to
bid orders by potential holders with a dividend rate equal to or
lower than the then-maximum rate is at least equal to the number of
Series E Auction Rate Preferred shares subject to sell orders, then
the dividend rate for the next dividend period will be the lowest
rate submitted which, taking into account that rate and all lower
rates submitted in order from existing and potential holders, would
result in existing and potential holders owning all the Series E
Auction Rate Preferred available for purchase in the auction.
If the number of Series E Auction Rate Preferred shares subject to
bid orders by potential holders with a dividend rate equal to or
lower than the then-maximum rate is less than the number of Series E
Auction Rate Preferred shares subject to sell orders, then the
auction is considered to be a failed auction and the dividend rate
will be the maximum rate. In that event, existing holders that have
submitted sell orders (or are treated as having submitted sell
orders) may not be able
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to sell any or all of the Series E Auction Rate Preferred for which
they submitted sell orders.
The auction agent will not consider a bid above the then-maximum
rate. The purpose of the maximum rate is to place an upper limit
on dividends with respect to the Series E Auction Rate Preferred
and in so doing to help protect the earnings available to pay
dividends on the common stock and the other series of preferred
stock, and to serve as the dividend rate in the event of a
failed auction (that is, an auction where there are more shares
of Series E Auction Rate Preferred offered for sale than there
are buyers for those shares).
If broker-dealers submit or are deemed to submit hold orders for
all outstanding Series E Auction Rate Preferred, the auction is
considered an "all hold" auction and the dividend rate for the
next dividend period will be the "all hold rate," which is 80%
of the "AA" Financial Composite Commercial Paper Rate.
The auction procedures include a pro rata allocation of Series E
Auction Rate Preferred shares for purchase and sale. This
allocation process may result in an existing holder selling, or
a potential holder buying, fewer shares than the number of
Series E Auction Rate Preferred shares in its order. If this
happens, broker-dealers that have designated themselves as
existing holders or potential holders in respect of customer
orders will be required to make appropriate pro rata allocations
among their respective customers.
Settlement of purchases and sales will be made on the next
business day (which also is a dividend payment date) after the
auction date through DTC. Purchasers will pay for their Series E
Auction Rate Preferred through broker-dealers in same-day funds
to DTC against delivery to the broker-dealers. DTC will make
payment to the sellers' broker-dealers in accordance with its
normal procedures, which require broker-dealers to make payment
against delivery in same-day funds. As used in this prospectus,
a business day is a day on which the NYSE is open for trading,
and which is not a Saturday, Sunday or any other day on which
banks in New York City are authorized or obligated by law to
close.
The first auction for Series E Auction Rate Preferred will be
held on [__], 2003, the business day preceding the dividend
payment date for the initial dividend period. Thereafter, except
during special dividend periods, auctions for Series E Auction
Rate Preferred normally will be held every Thursday (or the next
preceding business day if Thursday is a holiday), and each
subsequent dividend period for the Series E Auction Rate
Preferred normally will begin on the following Friday.
If an auction is not held because an unforeseen event or
unforeseen events cause a day that otherwise would have been an
auction date not
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to be a business day, then the length of the then-current
dividend period will be extended by seven days (or a multiple
thereof if necessary because of such unforeseen event or
events), the applicable rate for such period will be the
applicable rate for the then-current dividend period so extended
and the dividend payment date for such dividend period will be
the first business day immediately succeeding the end of such
period. See "The Auction of Series E Auction Rate Preferred."
Tax Treatment of Preferred
Stock Dividends......................... The Fund expects that dividends paid on the Series D Preferred
and Series E Auction Rate Preferred will consist of (i)
long-term capital gain (gain from the sale of a capital
asset held longer than 12 months), (ii) qualified dividend
income (income from domestic and certain foreign
corporations), and (iii) investment company taxable income
(other than qualified dividend income), including interest
income, short-term capital gain and income from certain
hedging and interest rate transactions. For individuals,
the maximum federal income tax rate on long-term capital
gain is currently 15%, on qualified dividend income is 15%,
and on other types of income is 35%. These tax rates are
scheduled to apply through 2008. Over the past three years,
approximately 89% of the Fund's distributions to
stockholders consisted of long-term capital gain and, of
the remaining 11% distributed to stockholders, 68% would
have, under the current tax provisions, constituted
qualified dividend income taxable at the 15% rate. Over the
last one year, approximately 93% of the Fund's
distributions to stockholders consisted of long-term
capital gain and, of the remaining 7% distributed to
stockholders, approximately 99% would have, under the
current tax provisions, constituted qualified dividend
income taxable at the 15% rate. We cannot assure you,
however, as to what percentage of the dividends paid on the
Series D Preferred or Series E Auction Rate Preferred will
consist of long-term capital gains and qualified dividend
income, which are taxed at lower rates for individuals than
ordinary income. For a more detailed discussion, see
"Taxation."
Rating and Asset
Coverage Requirements................... Series D Preferred. Before it can be issued, the Series D Preferred
must receive a rating of "Aaa" from Moody's. The Fund's Articles
Supplementary setting forth the rights and preferences of the Series D
Preferred contain certain tests that the Fund must satisfy to obtain and
maintain a rating of "Aaa" from Moody's on the Series D Preferred.
See "Description of the Series D Preferred and Series E Auction Rate
Preferred-- Rating Agency Guidelines."
Series E Auction Rate Preferred. Before it can be issued, the Series
E Auction Rate Preferred must receive both a rating of "Aaa" from
Moody's and a rating of "AAA" from S&P. As with the Series D
Preferred, the Articles Supplementary of the Fund setting forth the
rights and preferences of the Series E Auction Rate Preferred contain
certain tests that the Fund must satisfy to obtain and maintain a
rating of "Aaa" from Moody's and "AAA" from S&P. See "Description of
the Series D Preferred and Series E Auction Rate Preferred -- Rating
Agency Guidelines."
Asset Coverage Requirements. Under the asset coverage tests to which
each of the Series D Preferred and/or Series E Auction Rate Preferred
is subject, the Fund is required to maintain (i) assets having in the
aggregate a discounted value greater than or equal to a Basic
Maintenance Amount (as defined under "Description of the Series D
Preferred and Series E Auction Rate Preferred -- Rating Agency
Guidelines") for each such series calculated pursuant to the applicable
9
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rating agency guidelines and (ii) an asset coverage of at least 200%
(or such higher or lower percentage as may be required at the time
under the Investment Company Act of 1940, as amended (the "1940
Act")) with respect to all outstanding preferred stock of the Fund,
including the Series D Preferred and the Series E Auction Rate
Preferred. See "Description of the Series D Preferred and Series E
Auction Rate Preferred -- Asset Maintenance Requirements."
The Fund estimates that if the shares offered hereby had been issued
and sold as of September 15, 2003, the asset coverage under the 1940
Act would have been approximately 327% immediately following such
issuance (after giving effect to the deduction of the underwriting
discounts and estimated offering expenses for such shares of
$3,352,500). The asset coverage would have been computed as follows:
value of Fund assets less liabilities not constituting senior
securities ($1,374,744,505) / senior securities representing
indebtedness plus liquidation preference of each class of preferred
stock ($420,000,000), expressed as a percentage = 327%.
The Articles Supplementary for each of the Series D Preferred and the
Series E Auction Rate Preferred, which contain the technical provi
sions of the various components of the asset coverage tests, have
been filed as exhibits to this registration statement and may be
obtained through the web site of the Securities and Exchange Commission
(the "SEC") (http://www.sec.gov).
Mandatory Redemption.................... The Series D Preferred and the Series E Auction Rate Preferred may be
subject to mandatory redemption by the Fund to the extent the Fund
fails to maintain the asset coverage requirements in accordance with
the rating agency guidelines or the 1940 Act described above and does
not cure such failure by the applicable cure date. If the Fund redeems
preferred stock mandatorily, it may, but is not required to, redeem a
sufficient number of shares of preferred stock so that after the
redemption the Fund exceeds the asset coverage required by the
guidelines of each of the applicable rating agencies and the 1940 Act
by 10%.
With respect to the Series D Preferred, any such redemption will be
made for cash at a redemption price equal to $25 per share plus
accumulated and unpaid dividends (whether or not earned or declared)
to the redemption date.
With respect to the Series E Auction Rate Preferred, any such
redemption will be made for cash at a redemption price equal to
$25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) to the redemption date,
plus, in the case of Series E Auction Rate Preferred having a dividend
period of more than one year, any applicable redemption premium
determined by the Board of Directors. See "Description of the Series
10
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D Preferred and Series E Auction Rate Preferred -- Mandatory
Redemption."
In the event of a mandatory redemption, such redemption will be made
from the Series D Preferred, the Series E Auction Rate Preferred or
other preferred stock of the Fund in such proportions as the Fund may
determine, subject to the limitations of the 1940 Act and Maryland
law.
Optional Redemption..................... Subject to the limitations of the 1940 Act and Maryland law, the Fund
may, at its option, redeem the Series
D Preferred and/or the Series E
Auction Rate Preferred as follows:
Series D Preferred. Commencing [__], 2008 and at any time thereafter,
the Fund at its option may redeem the Series D Preferred, in whole or
in part, for cash at a redemption price per share equal to $25 plus
accumulated and unpaid dividends (whether or not earned or declared)
to the redemption date. If fewer than all of the shares of the Series
D Preferred are to be redeemed, any such redemption of Series D
Preferred shares will be made pro rata in accordance with the number
of such shares held. Prior to [__], 2008 the Series D Preferred will
be subject to optional redemption by the Fund at the redemption price
only to the extent necessary for the Fund to continue to qualify for
tax treatment as a regulated investment company. See "Description of
the Series D Preferred and Series E Auction Rate Preferred --
Redemption -- Optional Redemption of the Series D Preferred."
Series E Auction Rate Preferred. The Fund at its option generally may
redeem Series E Auction Rate Preferred, in whole or in part, at any
time other than during a non-call period. The Fund may declare a non-
call period during a dividend period of more than seven days. If
fewer than all of the shares of the Series E Auction Rate Preferred
are to be redeemed, any such redemption of Series E Auction Rate
Preferred shares will be made pro rata in accordance with the number
of such shares held. See "Description of the Series D Preferred and
Series E Auction Rate Preferred -- Redemption -- Optional Redemption
of the Series E Auction Rate Preferred."
The redemption price per Series E Auction Rate Preferred share will
equal $25,000 plus an amount equal to any accumulated but unpaid
dividends thereon (whether or not earned or declared) to the
redemption date, plus, in the case of Series E Auction Rate Preferred
having a dividend period of more than one year, any redemption
premium applicable during such dividend period. See "Description of
the Series D Preferred and Series E Auction Rate Preferred --
Redemption -- Optional Redemption of the Series E Auction Rate
Preferred."
The Fund redeemed 100% of its outstanding Series A Preferred on June
17, 2003. The Fund's outstanding Series B Preferred is redeemable at
the option of the Fund beginning June 20, 2006. The Fund generally
may redeem the outstanding Series C Auction Rate
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Preferred, in whole or in part, at any time other than during a
non-call period. Such redemptions are subject to the limitations of
the 1940 Act and Maryland law. See "Description of the Series D
Preferred and Series E Auction Rate Preferred -- Redemption."
Voting Rights........................... At all times, holders of the Fund's outstanding preferred stock
(including the Series D Preferred and/or Series E Auction Rate
Preferred), voting as a single class, will be entitled to elect two
members of the Fund's Board of Directors, and holders of the
preferred stock and common stock, voting as a single class, will
elect the remaining directors. However, upon a failure by the Fund to
pay dividends on any of its preferred stock in an amount equal to two
full years dividends, holders of the preferred stock, voting as a
single class, will have the right to elect additional directors that
would then constitute a simple majority of the directors until all
cumulative dividends on all shares of preferred stock have been paid
or provided for. Holders of outstanding shares of Series D Preferred,
Series E Auction Rate Preferred and any other preferred stock will
vote separately as a class on certain other matters, as required
under the Charter (including the applicable Articles Supplementary),
the 1940 Act and Maryland law. Except as otherwise indicated in this
prospectus and as otherwise required by applicable law, holders of
Series D Preferred and/or Series E Auction Rate Preferred will be
entitled to one vote per share on each matter submitted to a vote of
stockholders and will vote together with the holders of common stock
and any other preferred stock as a single class. See "Description of
the Series D Preferred and Series E Auction Rate Preferred -- Voting
Rights."
Liquidation Preference.................. The liquidation preference of the Series D Preferred is $25 per share.
The liquidation preference of the Series E Auction Rate Preferred is
$25,000 per share. Upon liquidation, holders of preferred stock will be
entitled to receive the liquidation preference with respect to their shares
of preferred stock plus an amount equal to accumulated but unpaid
dividends with respect to such shares (whether or not earned or
declared) to the date of distribution. See "Description of the Series D
Preferred and Series E Auction Rate Preferred-- Liquidation Rights."
Use of Proceeds......................... The Fund will use the net proceeds from the offering to purchase
additional portfolio securities in accordance with its investment
objectives and policies. See "Use of Proceeds."
Listing of the Series D
Preferred............................... Prior to its being offered, there has been no public market for the
Series D Preferred. Following its issuance (if issued), the Series D
Preferred is expected to be listed on the NYSE. However, during an
initial period which is not expected to exceed 30 days after the date
of its initial issuance, the Series D Preferred will not be listed on
any securities exchange and, consequently, may be illiquid during
that period.
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Limitation on Secondary
Market Trading of the
Series E Auction Rate Preferred......... The Series E Auction Rate Preferred will not be listed on an
exchange. Broker-dealers may, but are not obliged to, maintain a
secondary trading market in Series E Auction Rate Preferred outside
of auctions. There can be no assurance that a secondary market will
provide owners with liquidity. You may transfer Series E Auction Rate
Preferred outside of auctions only to or through a broker-dealer that
has entered into an agreement with the auction agent and the Fund, or
other persons as the Fund permits.
Special Characteristics
and Risks............................... Risk is inherent in all investing. Therefore, before investing in Series
D Preferred or Series E Auction Rate Preferred you should consider the
risks carefully.
Series D Preferred. Primary risks specially associated with an
investment in the Series D Preferred include:
The market price for the Series D Preferred will be influenced by
changes in interest rates, the perceived credit quality of the Series
D Preferred and other factors.
During an initial period which is not expected to exceed 30 days
after the date of its issuance, the Series D Preferred will not be
listed on any securities exchange. During such period, the
underwriters intend to make a market in the Series D Preferred,
however, they have no obligation to do so. Consequently, the Series D
Preferred may be illiquid during such period. No assurances can be
provided that listing on any securities exchange or market making by
the underwriters will result in the market for Series D Preferred
being liquid at any time.
Series E Auction Rate Preferred. Primary risks specially associated
with an investment in Series E Auction Rate Preferred include:
If an auction fails, you may not be able to sell some or all of your
Series E Auction Rate Preferred. The Fund is not obliged to redeem
your Series E Auction Rate Preferred if an auction fails. The
underwriters are not required to make a market in the Series E
Auction Rate Preferred. No broker-dealer is obligated to maintain a
secondary market for the Series E Auction Rate Preferred apart from
the auctions.
You may receive less than the price you paid for your Series E
Auction Rate Preferred if you sell them outside of the auction,
especially when market interest rates are rising.
Both the Series D Preferred and Series E Auction Rate Preferred. An
investment in either the Series D Preferred or Series E Auction Rate
Preferred also includes the following primary risks:
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You will have no right to require the Fund to repurchase or redeem
your shares of Series D Preferred or Series E Auction Rate Preferred
at any time.
A rating agency could downgrade or withdraw the rating assigned to
the Series D Preferred and/or Series E Auction Rate Preferred, which
would likely have an adverse effect on the liquidity and market value
of these preferred shares. The present credit rating does not
eliminate or mitigate the risks of investing in these preferred
shares.
In general, the Fund may redeem your Series E Auction Rate Preferred
at any time and may redeem your Series D Preferred at any time after
[__], 2008, and may at any time redeem shares of either or both
series to meet regulatory or rating agency requirements. Upon
redemption, you may not be able to reinvest your proceeds at a rate
that is the same or higher then the Series D Preferred and/or Series
E Auction Rate Preferred. Subject to such redemptions, these
preferred shares are perpetual.
The Fund may not meet the asset coverage requirements or earn
sufficient income from its investments to pay dividends on the Series
D Preferred and/or Series E Auction Rate Preferred.
The Series D Preferred and/or Series E Auction Rate Preferred are not
obligations of the Fund. Although unlikely, precipitous declines in
the value of the Fund's assets could result in the Fund having
insufficient assets to redeem all of the Series D Preferred and/or
Series E Auction Rate Preferred for the full redemption price.
The value of the Fund's investment portfolio may decline, reducing
the asset coverage for the Series D Preferred and/or Series E Auction
Rate Preferred. Further, if an issuer of a common stock in which the
Fund invests experiences financial difficulties or if an issuer's
preferred stock or debt security is downgraded or defaults or if an
issuer in which the Fund invests is affected by other adverse market
factors, there may be a negative impact on the income and/or asset
value of the Fund's investment portfolio.
As a non-diversified investment company under the 1940 Act, the Fund
is not limited in the proportion of its assets that may be invested
in securities of a single issuer, and accordingly, an investment in
the Fund may, under certain circumstances, present greater risk to an
investor than an investment in a diversified company. See "Risk
Factors and Special Considerations -- Non-Diversified Status."
The Fund may invest up to 10% of its total assets in fixed-income
securities rated in the lower rating categories of recognized
statistical rating agencies, also sometimes referred to as "junk
bonds." Such securities are subject to greater risks than investment
grade securities, which reflect their speculative character, including
(i) greater volatility; (ii) greater credit risk; (iii) potentially
greater sensitivity to general economic or industry conditions; (iv)
potential lack of attractive resale
14
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opportunities (illiquidity); and (v) additional expenses to seek recovery
from issuers who default. See "Risk Factors and Special
Considerations-- Lower Rated Securities."
The Fund may invest up to 35% of its total assets in foreign
securities. Investing in securities of foreign companies (or foreign
governments), which are generally denominated in foreign currencies,
may involve certain risks and opportunities not typically associated
with investing in domestic companies and could cause the Fund to be
affected favorably or unfavorably by changes in currency exchange
rates and revaluation of currencies. See "Risk Factors and Special
Considerations -- Foreign Securities."
The Fund's leveraged capital structure creates special risks not
associated with unleveraged funds having similar investment
objectives and policies. These include, among others, the possibility
of greater loss and the likelihood of higher volatility of the net
asset value of the Fund and the asset coverage for the Series D
Preferred and/or Series E Auction Rate Preferred. Such volatility may
increase the likelihood of the Fund having to sell investments in
order to meet dividend payments on the preferred stock, or to redeem
preferred stock when it may be disadvantageous to do so. See "Risk
Factors and Special Considerations -- Leverage Risk."
The Fund has entered into an interest rate swap transaction with
respect to its outstanding Series C Auction Rate Preferred and may
enter into an interest rate swap or cap transaction with respect to
all or a portion of the Series E Auction Rate Preferred. The use of
interest rate swaps and caps is a highly specialized activity that
involves certain risks to the Fund including, among others,
counterparty risk and early termination risk. See "How the Fund
Manages Risk -- Interest Rate Transactions."
The Investment Adviser is dependent upon the expertise of Mr. Mario
J. Gabelli in providing advisory services with respect to the Fund's
investments. If the Investment Adviser were to lose the services of
Mr. Gabelli, its ability to service the Fund could be adversely
affected. There can be no assurance that a suitable replacement could
be found for Mr. Gabelli in the event of his death, resignation,
retirement or inability to act on behalf of the Investment Adviser.
See "Risk Factors and Special Considerations -- Dependence on Key
Personnel."
The Fund has qualified, and intends to remain qualified, for federal
income tax purposes as a regulated investment company. Qualification
requires, among other things, compliance by the Fund with certain
distribution requirements. Statutory limitations on distributions on
the common stock if the Fund fails to satisfy the 1940 Act's asset
coverage requirements could jeopardize the Fund's ability to meet the
distribution requirements. The Fund presently intends, however, to
purchase or redeem preferred stock to the extent necessary in order
to maintain compliance with such asset coverage requirements. See
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"Taxation" for a more complete discussion of these and other federal
income tax considerations.
Management and Fees..................... Gabelli Funds, LLC serves as the Fund's investment adviser (the
"Investment Adviser") and is compensated for its services and its
related expenses at an annual rate of 1.00% of the Fund's average
weekly net assets. The Investment Adviser is responsible for
administration of the Fund and currently utilizes and pays the fees of
a third party sub-administrator. Notwithstanding the foregoing, the
Investment Adviser has voluntarily agreed to waive the portion of its
investment advisory fee attributable to an amount of assets of the Fund
equal to the aggregate stated value of the Fund's outstanding Series D
Preferred or Series E Auction Rate Preferred, as the case may be, for
any calendar year in which the net asset value total return of the Fund
allocable to the common stock, including distributions and the advisory
fee subject to potential waiver, is less than (i) in the case of the Series
D Preferred, the stated annual dividend rate of such series and (ii) in
the case of the Series E Auction Rate Preferred, the net cost of capital
to the Fund with respect to the Series E Auction Rate Preferred for
such year expressed as a percentage (including, without duplication,
dividends paid by the Fund on the Series E Auction Rate Preferred and
the net cost to the Fund of any associated swap or cap transaction if the
Fund hedges its Series E Auction Rate Preferred dividend obligations).
This waiver will apply to the portion of the Fund's assets attributable
to the Series D Preferred and Series E Auction Rate Preferred,
respectively, for so long as any shares of such series remain
outstanding. See "Management of the Fund."
Repurchase of
Stock................................... The Fund may repurchase Series D Preferred or, outside of an auction,
Series E Auction Rate Preferred when it is deemed advisable by the
Board of Directors in compliance with the requirements of the 1940 Act
and regulations thereunder and other applicable requirements. The Fund
will not repurchase Series E Auction Rate Preferred at Auction. This
Prospectus will serve as notice that the Fund may from time to time
repurchase Series D Preferred when such shares are trading the below
the $25 per share liquidation preference. See "Description of the
Series D Preferred and Series E Auction Rate Preferred-- Repurchase of
Series D Preferred and Series E Auction Rate Preferred Stock."
The Fund's Board of Directors has authorized the Fund to repurchase its
common stock in the open market when the common stock is trading at a
discount of 10% or more from net asset value. Such repurchases are
subject to the Fund maintaining asset coverage on its preferred stock
and to certain notice and other requirements, including those set forth
in Rule 23c-1 under the 1940 Act. See "Description of Capital Stock and
Other Securities -- Common Stock." Through September 15, 2003, the Fund
has repurchased in the open market zero shares of its common stock
under this authorization. See "Description of Capital Stock and Other
Securities -- Common Stock."
Anti-takeover Provisions................ Certain provisions of the Fund's charter (the "Charter") and the Fund's
by-laws (the "By-Laws") may be regarded as "anti-takeover" provisions.
Pursuant to these provisions, only one of three classes of directors is
elected each year. In addition, the affirmative vote of the holders of
66 2/3% of each class of the Fund's outstanding voting stock, each
voting as a separate class, is necessary to authorize the conversion of
the Fund from a closed-end to an open-end investment company or to
authorize certain transactions between the Fund and a beneficial owner
of more than 5% of any class of the Fund's capital stock. The vote of a
majority (as defined in the 1940 Act ) of the holders of the Fund's
outstanding voting securities, voting as a single class, is also
necessary to authorize the conversion of the Fund from a closed-end to
an open-end investment company. The overall effect of these provisions
is to render more difficult the accomplishment of a merger with, or the
assumption of control by, a principal stockholder. These provisions may
have the effect of depriving Fund stockholders of an opportunity to sell
their stock at a premium to the prevailing market price. See
"Anti-takeover Provisions of the Charter and By-Laws."
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Custodian, Transfer Agent,
Auction Agent and
Dividend Disbursing Agent............... State Street Bank and Trust Company (the "Custodian"), located at 150
Royall Street, Canton, MA 02021, serves as the custodian of the Fund's
assets pursuant to a custody agreement. Under the custody agreement,
the Custodian holds the Fund's assets in compliance with the 1940 Act.
For its services, the Custodian will receive a monthly fee based upon,
among other things, the average value of the total assets of the Fund,
plus certain charges for securities transactions.
EquiServe Trust Company, N.A., located at P.O. Box 43025, Providence,
RI 02940-3025, serves as the Fund's dividend disbursing agent, as
agent under the Fund's automatic dividend reinvestment and voluntary
cash purchase plan, and as transfer agent and registrar with respect
to the common stock of the Fund.
Series D Preferred. EquiServe will also serve as the transfer agent,
registrar, dividend paying agent and redemption agent with respect to
the Series D Preferred. EquiServe currently serves in such capacities
with respect to the Series B Preferred.
Series E Auction Rate Preferred. The Bank of New York will serve as
the auction agent, transfer agent, registrar, dividend paying agent
and redemption agent with respect to the Series E Auction Rate
Preferred. The Bank of New York currently serves in such capacities
with respect to the Series C Auction Rate Preferred.
Interest Rate Transactions ............. The Fund has entered into an interest rate swap transaction with
respect to its outstanding Series C Auction Rate Preferred, and may
enter into interest rate swap or cap transactions in relation to all
or a portion of the Series E Auction Rate Preferred in order to
manage the impact on its portfolio of changes in the dividend rate of
the Series E Auction Rate Preferred. Through these transactions the
Fund may, for example, obtain the equivalent of a fixed rate for such
auction rate preferred stock that is lower than the Fund would have
to pay if it issued fixed rate preferred stock. The use of interest
rate swaps and caps is a highly specialized activity that involves
investment techniques and risks different from those associated with
ordinary portfolio security transactions.
17
|
In an interest rate swap, the Fund would agree to pay to the other
party to the interest rate swap (which is known as the
"counterparty") periodically a fixed rate payment in exchange for the
counterparty agreeing to pay to the Fund periodically a variable rate
payment that is intended to approximate the Fund's variable rate
payment obligation on the auction rate preferred stock. In an
interest rate cap, the Fund would pay a premium to the counterparty
to the interest rate cap and, to the extent that a specified variable
rate index exceeds a predetermined fixed rate, the Fund would receive
from the counterparty payments of the difference based on the
notional amount of such cap.
Interest rate swap and cap transactions introduce additional risk
because the Fund would remain obligated to pay preferred stock
dividends when due in accordance with the Articles Supplementary even
if the counterparty defaulted. Depending on the general state of
short-term interest rates and the returns on the Fund's portfolio
securities at that point in time, such a default could negatively
affect the Fund's ability to make dividend payments on the Series D
Preferred and Series E Auction Rate Preferred. In addition, at the
time an interest rate swap or cap transaction reaches its scheduled
termination date, there is a risk that the Fund will not be able to
obtain a replacement transaction or that the terms of the replacement
will not be as favorable as on the expiring transaction. If this
occurs, it could have a negative impact on the Fund's ability to make
dividend payments on the Series D Preferred and Series E Auction Rate
Preferred.
A sudden and dramatic decline in interest rates may result in a
significant decline in the asset coverage. If the Fund fails to
maintain the required asset coverage on its outstanding preferred
stock or fails to comply with other covenants, the Fund may, at its
option (and in certain circumstances will be required to)
consistent with its Charter and the requirements of the 1940 Act
mandatorily redeem some or all of its preferred
stock (including the Series D Preferred or the Series E Auction
Rate Preferred). Such redemption likely would result in the Fund
seeking to terminate early all or a portion of any swap or cap
transaction. Early termination of a swap could require the Fund to
make a termination payment to the counterparty.
The Fund intends to segregate cash or liquid securities having a
value at least equal to the value of the Fund's net payment
obligations under any swap transaction, marked to market daily. The
Fund does not presently intend to enter into interest rate swap or
cap transactions relating to the Series E Auction Rate Preferred in a
notional amount in excess of the outstanding amount of the Series E
Auction Rate Preferred. The Fund will monitor any such swap or cap
transaction with a view to ensuring that the Fund remains in
compliance with all applicable regulatory investment policy and tax
requirements. See "How the Fund Manages Risk -- Interest Rate
Transactions" for additional information.
18
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Use of Leverage..........................As provided in the 1940 Act, and subject to compliance with the Fund's
investment limitations, the Fund may issue senior securities
representing stock, such as preferred stock, so long as immediately
following such issuance the stock will have an asset coverage of 200%.
The use of leverage magnifies the impact of changes in net asset value.
In addition, if the cost of leverage exceeds the return on the
securities acquired with the proceeds of leverage, the use of leverage
will diminish rather than enhance the return to the Fund. See "Invest
Objectives and Policies-- Special Investment Methods -- Leveraging."
|
FINANCIAL HIGHLIGHTS
The selected data below sets forth the per share operating performance and ratios for the periods presented. The financial information was derived from and should be read in conjunction with the Financial Statements of the Fund and Notes thereto, which are incorporated by reference into this prospectus and the SAI. The financial information for the year ending December 31, 2002, and for each of the preceding nine years has been audited by PricewaterhouseCoopers LLP, the Fund's independent accountants, whose unqualified report on such Financial Statements is incorporated by reference into the SAI.
Selected data for a Fund common share outstanding throughout each period:
Six Months
Ended Year Ended December 31,
June 30, 2003
(unaudited) 2002(a) 2001(a) 2000(a) 1999(a) 1998(a)
--------- ------- ------- ------- ------- -------
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 6.28 $ 8.97 $ 10.89 $ 12.75 $11.47 $11.56
--------- ------- ------- ------- ------- -------
Net investment income............................. 0.03 0.06 0.08 0.05 0.04 0.07
Net realized and unrealized gain (loss) on
investments..................................... 0.95 (1.64) (0.16) (0.51) 3.25 1.09
--------- ------- ------- ------- ------- -------
Total from investment operations.................. 0.98 (1.58) (0.08) (0.46) 3.29 1.16
--------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income............................. (0.09) (0.01) (0.01) (0.00)(c) (0.00)(c) (0.00)(c)
Net realized gain on investments.................. --- (0.16) (0.11) (0.09) (0.09) (0.05)
--------- ------- ------- ------- ------- -------
Total distributions to preferred stock shareholders (0.09) (0.17) (0.12) (0.09) (0.09) (0.05)
--------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO COMMON STOCK SHAREHOLDER'S
RESULTING FROM OPERATIONS ...................... 0.89 (1.75) (0.20) (0.55) 3.20 1.11
--------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income............................. (0.40) (0.05) (0.06) (0.04) (0.03)(b) (0.06)
Net realized gain on investments.................. --- (0.90) (1.02) (1.27) (1.21)(b) (1.10)
Paid-in capital................................... --- (0.00)(c) -- -- (0.68)(b) --
--------- ------- ------- ------- ------- -------
Total distributions to common stock shareholders.. (0.40) (0.95) (1.08) (1.31) (1.92) (1.16)
--------- ------- ------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Increase in net asset value from common stock
share transactions.............................. 0.01 0.02 0.03 -- -- --
Decrease in net asset value from shares issued
in rights offering................................. -- -- (0.62) -- -- --
Offering costs for preferred shares charged to
paid-in capital (0.00)(c) (0.01) (0.05) -- -- (0.04)
--------- ------- ------- ------- ------- -------
Total capital share transactions.................. 0.01 0.01 (0.64) -- -- (0.04)
--------- ------- ------- ------- ------- -------
NET ASSET VALUE ATTRIBUTABLE TO COMMON STOCK
SHAREHOLDERS, END OF PERIOD..................... $ 6.75 $ 6.28 $ 8.97 $ 10.89 $ 12.75 $11.47
========= ======= ======= ======= ======= =======
Net asset value total return+..................... 14.50% (21.00)% (3.68)% (4.39)% 29.49% 9.55%
========= ======= ======= ======= ======= =======
Market value, end of period....................... $ 7.47 $ 6.85 $ 10.79 $ 11.44 $ 12.56 $ 11.56
========= ======= ======= ======= ======= =======
Total investment return++......................... 15.65% (28.36)% 10.32% 1.91% 26.57% 9.23%
========= ======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA:
Net assets including liquidation value of
preferred shares, end of period (in 000's)...... $1,216,575 $1,271,600 $1,465,369 $1,318,26 $1,503,641 $1,352,190
Net assets attributable to common stock,
end of period (in 000's)........................ $ 921,575 $ 842,403 $1,166,171 $1,184,04 $1,368,981 $1,217,190
Ratio of net investment income to average net
assets attributable to common stock............ 0.73%(k) 0.81% 0.81% 0.42% 0.34% 0.60%
Ratio of operating expenses to average net assets
attributable to common stock (e)(g)............. 1.86%(k) 1.37% 1.12% 1.14% 1.27% 1.15%
Ratio of operating expenses to average total
net assets including liquidation value
of preferred shares (e)(g) 1.26%(k) 1.00% 0.95% 1.03% 1.15% 1.09%
Portfolio turnover rate........................... 2.2% 27.1% 23.9% 32.1% 38.0% 39.8%
PREFERRED STOCK:
7.25% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's)....... $ -- $134,198 $134,198 $134,223 $134,660 $135,000
Total shares outstanding (in 000's)............... -- 5,368 5,368 5,369 5,386 5,400
Liquidation preference per share.................. $ -- $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00
Average market value (d).......................... $ -- $ 25.75 $ 25.39 $ 22.62 $ 24.43 $ 25.63
7.20% CUMULATIVE PREFERRED STOCK
Liquidation value, end of period (in 000's)....... $ 165,000 $165,000 $165,000 -- -- --
Total shares outstanding (in 000's)............... 6,600 6,600 6,600 -- -- --
Liquidation preference per share.................. $ 25.00 $ 25.00 $ 25.00 -- -- --
Average market value (d).......................... $ 27.12 $ 26.40 $ 25.60 -- -- --
AUCTION RATE CUMULATIVE PREFERRED STOCk
Liquidation value, end of period (in 000's)....... $ 130,000 $130,000 -- -- -- --
Total shares outstanding (in 000's)............... 5 5 -- -- -- --
Liquidation preference per share.................. $ 25,000 $ 25,000 -- -- -- --
Average market value (d).......................... $ 25,000 $ 25,000 -- -- -- --
ASSET COVERAGE (f)................................ 412% 296% 490% 982% 1,117% 1,001%
ASSET COVERAGE PER SHARE (f)...................... $ 184.18 $ 106.20 $ 122.44 $ 245.54 $ 279.16 $ 250.41
21
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Year Ended December 31,
1997(a) 1996(a) 1995(a) 1994(a) 1993(a)
--------- --------- --------- --------- ---------
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 9.77 $ 9.95 $ 9.46 $ 11.23 $ 10.58
Net investment income............................. 0.08 0.11 0.13 0.14 0.14
Net realized and unrealized gain (loss)
on investments 2.75 0.71 1.74 (0.08) 2.13
Total from investment operations.................. 2.83 0.82 1.87 0.06 2.27
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income............................. (0.08) (0.11) (0.13) (0.14)(h) (0.11)
In excess of net investment income................ (0.00)(d) -- -- -- --
Net realized gain on investments ................. (0.93) (0.78) (0.47) (0.37)(h) (0.77)
In excess of net realized gain on investments..... -- (0.00)(c) (0.02) -- (0.02)
Paid-in capital................................... (0.03) (0.11) (0.38) (1.32)(h) (0.21)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net asset
value from Fund share transactions............. -- -- (0.37) -- (0.50)
Decrease in net asset value from shares issued in
rights offering................................. -- -- -- -- --
Offering expenses charged to capital surplus...... -- -- (0.01) -- (0.01)
TOTAL DISTRIBUTIONS.................................. (1.04) (1.00) (1.00) (1.83) (1.11)
NET ASSET VALUE, END OF PERIOD....................... $ 11.56 $ 9.77 $ 9.95 $ 9.46 $ 11.23
Market value, end of period....................... $ 11.69 $ 9.38 $ 9.375 $ 9.625 $ 12.125
Net asset value total return +.................... 30.46% 9.00% 20.60% 0.50% 22.40%
Total investment return ++........................ 37.46% 11.00% 11.70% (5.10)% 36.50%
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK
SHAREHOLDERS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,210,570 $1,015,437 $1,034,091 $ 825,193 $ 937,773
Net assets attributable to common stock, end
of period (in 000's)............................ 1,210,570 1,015,437 1,034,091 825,193 937,773
Ratio of net investment income to average net asse
attributable to common stock....................ts 0.76% 1.07% 1.26% 1.29% 1.25%
Ratio of operating expenses to average total net
assets(i)....................................... 1.14% 1.18% 1.21% 1.19% 1.20%
Portfolio turnover rate........................... 39.2% 18.9% 25.1% 22.2% 24.4%
|
+ Based on net asset value per share, adjusted for reinvestment of
distributions, including the effect of shares issued pursuant to rights
offering, assuming full subscription by stockholder. Total return for the
period less than one year is not annualized.
++ Based on market value per share, adjusted for reinvestment of
distributions, including the effect of shares issued pursuant to rights
offering, assuming full subscription by stockholder. Total return for the
period less than one year is not annualized.
(a) Per share amounts have been calculated using the monthly average shares
outstanding method.
(b) A distribution equivalent to $0.75 per share for The Gabelli Utility
Trust spin-off from net investment income, realized short-term gains,
realized long-term gains, and paid-in-capital were $0.01029, $0.07453,
$0.34218 and $0.32300, respectively.
(c) Amount represents less than $0.005 per share. (d) Based on weekly prices.
(e) The ratios do not include a reduction of expenses for custodian fee
credits on cash balances maintained with the custodian. Including such
custodian fee credits for the years ended December 31, 2002, 2001 and
2000, the expense ratios of operating expenses to average net assets
attributable to common stock would be 1.37%, 1.11% and 1.14%,
respectively, and the expense ratios of operating expenses to average
total net assets including liquidation value of preferred shares would be
1.00%, 0.94% and 1.03%, respectively.
(f) Asset coverage is calculated by combining all series of preferred stock.
(g) The Fund incurred interest expense during the six months ended June 30, 2000 and the year ended December 31, 2002. If interest expense had not been incurred, the expense ratio of operating expenses to average net assets attributable to common stock would be 1.37% and 1.19%, respectively, and the expense ratio of operating expenses to average total net assets including liquidation value of preferred shares would be 0.92% and 0.87% respectively.
(h) Includes a distribution equivalent to $0.75 per share for The Gabelli
Global Multimedia Trust Inc. spin-off comprising net investment income,
realized short-term gains, and paid-in capital of $0.064, $0.031, and
$0.655, respectively.
(i) Amounts are attributable to both common and preferred stock assets.
(j) Prior to 1998 there was no preferred stock outstanding.
(k) Annualized.
The following table provides information about the Fund's Series A Preferred, Series B Preferred and Series C Auction Rate Preferred since the issuance of each such series. The information has been audited by PricewaterhouseCoopers LLP, independent accountants.
Involuntary
Liquidation Average
Year ended Shares Asset Coverage Preference Market
December 31, Outstanding Per Share Per Share Value Per Share
------------ ----------- --------- --------- ---------------
2002 Series A Preferred: 5,367,900 $106.20 $25.00 $25.75
Series B Preferred: 6,600,000 $106.20 $25.00 $26.40
Series C Auction: 5,200 $106.20 $25,000
Rate Preferred: $25,000
2001 Series A Preferred: 5,367,900 $122.44 $25.00 $25.39
Series B Preferred: 6,600,000 $122.44 $25.00 $25.60
2000 Series A Preferred: 5,368,900 $245.54 $25.00 $22.62
1999 Series A Preferred: 5,386,400 $279.16 $25.00 $24.43
1998 Series A Preferred: 5,400,000 $250.41 $25.00 $25.63
|
For purposes of the foregoing table, the Asset Coverage Per Share is calculated by dividing the total value of the Fund's assets on December 31 of the relevant year by the aggregate liquidation preference of the Fund's preferred shares outstanding on that date. Involuntary Liquidation Preference Per Share refers to the amount holders of Series A Preferred, Series B Preferred and Series C Auction Rate Preferred are entitled to receive per share in the event of liquidation of the Fund prior to the holders of common stock being entitled to receive any amounts in respect of the assets of the Fund. The Average Market Value Per Share for each the Series A Preferred and the Series B Preferred is the average of the weekly closing prices of such series on the NYSE each week during the relevant year.
USE OF PROCEEDS
The net proceeds of the offering are estimated at $[__], after deduction of the underwriting discounts and estimated offering expenses payable by the Fund. The Investment Adviser expects that it will initially invest the proceeds of the offering in high quality short-term debt securities and instruments. The Investment Adviser anticipates that the investment of the proceeds will be made in accordance with the Fund's investment objectives and policies within three months; however, changes in the current market conditions or other developments affecting the industries in which the Fund normally invests could result in the Fund's anticipated investment period extending to as long as six months.
THE FUND
The Fund, incorporated in Maryland on May 20, 1986, is a closed-end, non-diversified management investment company registered under the 1940 Act. The Fund's common stock is traded on the NYSE under the symbol "GAB." Prior to its redemption on June 17, 2003, the Fund's Series A Preferred traded on the NYSE under the symbol "GAB Pr." The Fund's Series B Preferred trades under the symbol "GAB P.B."
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Fund as of September 15, 2003, and its adjusted capitalization assuming the Series D Preferred and/or Series E Auction Rate Preferred offered in this prospectus had been issued.
As of September 15, 2003
(unaudited)
Actual As Adjusted
------ -----------
Preferred stock, $0.001 par value,
18,000,000 shares authorized.
(The "Actual" column reflects Fund's
outstanding capitalization as of September
15, 2003; the "As Adjusted" column assumes
the issuance of an additional 3,000,000
shares of Series D Preferred and 2,000
shares of Series E Auction Rate Preferred,
$25 and $25,000 liquidation preference,
respectively) .......................................... $ 295,000,000 $ 420,000,000
---------------- ---------------
Stockholders' Equity Applicable to shares of
common stock
Common stock, $.001 par value per share;
182,000,000 shares authorized,
136,014,878 shares outstanding.......................... 136,015 136,015
Paid-in surplus*............................................. 873,744,705 870,392,205
Accumulated distributions in excess of net
investment income....................................... (84,923,457) (84,923,457)
Accumulated net realized loss from
investment transactions................................. (2,169,658) (2,169,658)
Net unrealized appreciation.................................. 171,309,400 171,309,400
---------------- ---------------
Net assets applicable to common stockholders................. 958,097,005 954,744,505
---------------- ---------------
Net assets, plus liquidation preference of
preferred stock......................................... $1,253,097,005 $1,374,744,505
================ ===============
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* As adjusted paid-in surplus reflects a reduction for the sales load and estimated offering cost of the Series D Preferred and/or Series E Auction Rate Preferred issuance of $3,352,500.
As used in this prospectus, unless otherwise noted, the Fund's "managed assets" include the aggregate net asset value of the Fund's common stock plus assets attributable to its outstanding preferred stock, with no deduction for the liquidation preference of such preferred stock. For financial reporting purposes, however, the Fund is required to deduct the liquidation preference of its outstanding preferred stock from "managed assets," so long as the preferred stock has redemption features that are not solely within the control of the Fund. For all regulatory purposes, the Fund's preferred stock will be treated as stock (rather than as indebtedness).
INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective is to achieve long-term growth of capital by investing primarily in a portfolio of equity securities consisting of common stock, preferred stock, convertible or exchangeable securities and warrants and rights to purchase such securities selected by the Investment Adviser. Income is the secondary investment objective. The investment objectives of long-term growth of capital and income are fundamental policies of the Fund. These fundamental policies and the investment limitations described in the SAI under the caption "Investment Restrictions" cannot be changed without the approval of the holders of a majority of the Fund's outstanding shares of preferred stock voting as a separate class and the approval of the holders of a majority of the Fund's outstanding voting securities. Such majority votes require, in each case, the lesser of (i) 67% of the Fund's applicable shares represented at a meeting at which more than 50% of the Fund's applicable shares outstanding are represented, whether in person or by proxy, or (ii) more than 50% of the applicable shares outstanding shares of the applicable class.
Under normal market conditions, the Fund will invest at least 80% of the value of its total assets in equity securities.
The Investment Adviser selects investments on the basis of fundamental value and, accordingly, the Fund typically invests in the securities of companies that are believed by the Investment Adviser to be priced lower than justified in relation to their underlying assets. Other important factors in the selection of investments include favorable price/earnings and debt/equity ratios and strong management.
The Fund seeks to achieve its secondary investment objective of income, in part, by investing up to 10% of its total assets in a portfolio consisting primarily of high-yielding, fixed-income securities, such as corporate bonds, debentures, notes, convertible securities, preferred stocks and domestic and foreign government obligations. Generally, debt securities purchased by the Fund will be rated in the lower rating categories of recognized statistical rating agencies, such as securities rated CCC or lower by S&P or Caa or lower by Moody's, or will be nonrated securities of comparable quality. These debt securities are predominantly speculative and involve major risk exposure to adverse conditions and are often referred to in the financial press as "junk bonds."
No assurance can be given that the Fund's investment objectives will be achieved.
Investment Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser normally will consider the following factors, among others:
o the Investment Adviser's own evaluations of the private market value, cash flow, earnings per share and other fundamental aspects of the underlying assets and business of the company;
o the potential for capital appreciation of the securities;
o the interest or dividend income generated by the securities;
o the prices of the securities relative to other comparable securities;
o whether the securities are entitled to the benefits of call protection or other protective covenants;
o the existence of any anti-dilution protections or guarantees of the security; and
o the diversification of the portfolio of the Fund as to issuers.
The Investment Adviser's investment philosophy with respect to equity securities seeks to identify assets that are selling in the public market at a discount to their private market value. The Investment Adviser defines private market value as the value informed purchasers are willing to pay to acquire assets with similar characteristics. The Investment Adviser also normally evaluates the issuers' free cash flow and long-term earnings trends. Finally, the Investment Adviser looks for a catalyst, something indigenous to the company, its industry or country that will surface additional value.
Certain Investment Practices
Foreign Securities. The Fund may invest up to 35% of its total assets in foreign securities. Among the foreign securities in which the Fund may invest are those issued by companies located in developing countries, which are countries in the initial stages of their industrialization cycles. Investing in the equity and debt markets of developing countries involves exposure to economic structures that are generally less diverse and less mature, and to political systems that can be expected to have less stability, than those of developed countries. The markets of developing countries historically have been more volatile than the markets of the more mature economies of developed countries, but often have provided higher rates of return to investors.
The Fund may also invest in the debt securities of foreign governments. Although such investments are not a principal strategy of the Fund, there is no independent limit on the Fund's ability to invest in the debt securities of foreign governments.
Temporary Defensive Investments. Subject to the Fund's investment restrictions, when a temporary defensive period is believed by the Investment Adviser to be warranted, ("temporary defensive periods"), the Fund may, without limitation, hold cash or invest its assets in securities of U.S. government sponsored instrumentalities, in repurchase agreements in respect of those instruments, and in certain high grade commercial paper instruments. During temporary defensive periods the Fund may also invest in money market mutual funds that invest primarily in securities of U.S. government sponsored instrumentalities and repurchase agreements in respect of those instruments. Under current law, in the absence of an exemptive order, such money market mutual funds will not be affiliated with the Investment Adviser. Obligations of certain agencies and instrumentalities of the U.S. government, such as the Government National Mortgage Association, are supported by the "full faith and credit" of the U.S. government; others, such as those of the Export-Import Bank of the U.S., are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. government would provide financial support to U.S. government sponsored instrumentalities if it is not obligated to do so by law. During temporary defensive periods, the Fund may be less likely to achieve its secondary investment objective of income.
Lower Rated Securities. The Fund may invest up to 10% of its total assets in fixed-income securities rated in the lower rating categories (as described below) of recognized statistical rating agencies, such as securities rated "CCC" or lower by S&P or "Caa" or lower by Moody's, or non-rated securities of comparable quality. These debt securities are predominantly speculative and involve major risk exposure to adverse conditions and are often referred to in the financial press as "junk bonds."
Generally, lower rated securities and unrated securities of comparable quality offer a higher current yield than is offered by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of the ratings organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher quality bonds. In addition, such lower rated securities and comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by these issuers is significantly greater because such lower rated securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. In light of these risks, the Investment Adviser, in evaluating the creditworthiness of an issue, whether rated or unrated, will take various factors into consideration, which may include, as applicable, the issuer's operating history, financial resources, its sensitivity to economic conditions and trends, the market support for the facility financed by the issue, the perceived ability and integrity of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is more volatile than that of higher quality securities, and the markets in which such lower rated or unrated securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict the availability of securities for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell securities at their fair market value to respond to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment expectations. If an issuer calls the obligation for redemption (often a feature of fixed income securities), the Fund may have to replace the security with a lower yielding security, resulting in a decreased return for investors. Also, as the principal value of bonds moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held by the Fund may decline proportionately more than a portfolio consisting of higher rated securities. Investments in zero coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay interest currently.
As part of its investments in lower rated fixed-income securities, the Fund may invest in securities of issuers in default. The Fund will only make an investment in securities of issuers in default when the Investment Adviser believes that such issuers will honor their obligations or emerge from bankruptcy protection and the value of these securities will appreciate. By investing in the securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy protection or that the value of the securities will not appreciate.
Other Investments. In addition to the investment methods discussed under "--Special Invesment Methods," the Fund is permitted to invest in special situations, illiquid securities, warrants, options and other rights. A discussion of these investments and techniques (and the risks associated with them) and further information on the investment objectives and policies of the Fund are set forth in the SAI.
Special Investment Methods
Futures Contracts and Options Thereon. On behalf of the Fund, the Investment Adviser may, subject to the Fund's investment restrictions and guidelines of the Board of Directors, purchase and sell financial futures contracts and options thereon which are traded on a commodities exchange or board of trade for certain hedging, yield enhancement and risk management purposes. These futures contracts and related options may be on debt securities, financial indices, securities indices, U.S. government securities and foreign currencies. A financial futures contract is an agreement to purchase or sell an agreed amount of securities or currencies at a set price for delivery in the future.
The Investment Adviser has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and therefore is not subject to the registration requirements under the Commodity Exchange Act. Accordingly, the Fund's investments in derivative instruments described in this prospectus and in the SAI are not limited by or subject to regulation under the Commodity Exchange Act or otherwise regulated by the Commodity Futures Trading Commission. Nevertheless, the Fund's investment restrictions place certain limitations and prohibitions on the Fund's ability to purchase or sell commodities or commodity contracts. See "Investment Restrictions." In addition, investment in futures contracts and related options generally will be limited by the rating agency guidelines applicable to any of the Fund's outstanding preferred stock.
Forward Currency Exchange Contracts. Subject to guidelines of the Board of Directors, the Fund may enter into forward foreign currency exchange contracts to protect the value of its portfolio against future changes in the level of currency exchange rates. The Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then prevailing in the currency exchange market or on a forward basis, by entering into a forward contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract at a price set on the date of the contract. The Fund's dealings in forward contracts generally will be limited to hedging involving either specific transactions or portfolio positions. The Fund does not have an independent limitation on its investments
in foreign futures contracts and options on foreign currency futures contracts. See "Investment Objectives and Policies-- Investment Practices" in the SAI.
Special Risks of Derivative Transactions. Participation in the options or futures markets and in currency exchange transactions involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If the Investment Adviser's prediction of movements in the direction of the securities, foreign currency and interest rate markets are inaccurate, the consequences to the Fund may leave the Fund in a worse position than if such strategies were not used. Risks inherent in the use of options, foreign currency, futures contracts and options on futures contracts, securities indices and foreign currencies include:
o dependence on the Investment Adviser's ability to predict correctly movements in the direction of interest rates, securities prices and currency markets;
o imperfect correlation between the price of options and futures contracts and options thereon and movements in the prices of the securities or currencies being hedged;
o the fact that skills needed to use these strategies are different from those needed to select portfolio securities;
o the possible absence of a liquid secondary market for any particular instrument at any time;
o the possible need to defer closing out certain hedged positions to avoid adverse tax consequences; and
o the possible inability of the Fund to purchase or sell a security at a time that otherwise would be favorable for it to do so, or the possible need for the Fund to sell a security at a disadvantageous time due to a need for the Fund to maintain "cover" or to segregate securities in connection with the hedging techniques.
See "Risk Factors and Special Considerations-- Futures Transactions."
Repurchase Agreements. The Fund may enter into repurchase agreements with primary government securities dealers recognized by the Federal Reserve Bank of New York and member banks of the Federal Reserve System which furnish collateral at least equal in value or market price to the amount of their repurchase obligation. The Fund will not enter into repurchase agreements with the Adviser or its affiliates. In a repurchase agreement, the Fund purchases a debt security from a seller which undertakes to repurchase the security at a specified resale price on an agreed future date. Repurchase agreements are generally for one business day but may have longer durations. The SEC has taken the position that, in economic reality, a repurchase agreement is a loan by the Fund to the other party to the transaction secured by securities transferred to the Fund. The resale price generally exceeds the purchase price by an amount which reflects an agreed upon market interest rate for the term of the repurchase agreement. The principal risk is that, if the seller defaults, the Fund might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund are less than the repurchase price. In the event of a default or bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral. The Board of Directors will monitor the creditworthiness of the counterparty to the repurchase agreements.
If the financial institution which is a party to the repurchase agreement petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is
unsettled. As a result, under these circumstances, there may be a restriction on the Fund's ability to sell the collateral and the Fund would suffer a loss.
Loans of Portfolio Securities. To increase income, the Fund may lend its portfolio securities to securities broker-dealers or financial institutions if (i) the loan is collateralized in accordance with applicable regulatory requirements and (ii) no loan will cause the value of all loaned securities to exceed 20% of the value of the Fund's total assets.
If the borrower fails to maintain the requisite amount of collateral, the loan automatically terminates and the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost over the value of the collateral. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in collateral should the borrower of the securities fail financially. While these loans of portfolio securities will be made in accordance with guidelines approved by the Board of Directors, there can be no assurance that borrowers will not fail financially. On termination of the loan, the borrower is required to return the securities to the Fund, and any gain or loss in the market price during the loan would inure to the Fund. If the counterparty to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a result, under these circumstances, there may be a restriction on the Fund's ability to sell the collateral and the Fund would suffer a loss. See "Investment Objectives and Policies -- Investment Practices" in the SAI.
Borrowing. The Fund may borrow money in accordance with its investment restrictions, including as a temporary measure for extraordinary or emergency purposes. The Fund may not borrow for investment purposes. See "Investment Restrictions" in the SAI.
Leveraging. As provided in the 1940 Act, and subject to compliance with the Fund's investment limitations, the Fund may issue senior securities representing stock, such as preferred stock, so long as immediately following such issuance of stock, the Fund's total assets exceed 200% of the amount of such stock. The use of leverage magnifies the impact of changes in net asset value. For example, a fund that uses 33% leverage will show a 1.5% increase or decline in net asset value for each 1% increase or decline in the value of its total assets. In addition, if the cost of leverage exceeds the return on the securities acquired with the proceeds of leverage, the use of leverage will diminish rather than enhance the return to the Fund. The use of leverage generally increases the volatility of returns to the Fund. See "Risk Factors and Special Considerations -- Preferred Stock -- Leverage Risk."
Further information on the investment objectives and policies of the Fund are set forth in the SAI.
Investment Restrictions. The Fund has adopted certain investment restrictions as fundamental policies of the Fund. Under the 1940 Act, a fundamental policy may not be changed without the vote of a majority, as defined in the 1940 Act, of the outstanding voting securities of the Fund (voting together as a single class). In addition, pursuant to the Fund's Articles Supplementary, a majority, as defined in the 1940 Act, of the outstanding preferred stock of the Fund (voting separately as a single class) is also required to change a fundamental policy. The Fund's investment restrictions are more fully discussed under "Investment Restrictions" in the SAI.
Portfolio Turnover. The Fund will buy and sell securities to accomplish its investment objective. The investment policies of the Fund may lead to frequent changes in investments, particularly in periods of rapidly fluctuating interest or currency exchange rates. The portfolio turnover may be higher than that of other investment companies.
Portfolio turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned during the year (excluding securities whose maturities at acquisition were one year or less). To the extent the Fund experiences high portfolio turnover, such turnover is likely to decrease tax advantages to individual investors in the Fund to the extent it results in a decrease of the long term capital gains portion of distributions to stockholders.
The portfolio turnover rates of the Fund for the fiscal years ending December 31, 2002, December 31, 2001 and December 31, 2000 were 27.1%, 23.9% and 32.1%, respectively.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following risk factors and special considerations associated with investing in the Fund.
Preferred Stock
General. There are a number of risks associated with an investment in the Series D Preferred or Series E Auction Rate Preferred. The market value for the Series D Preferred and/or Series E Auction Rate Preferred will be influenced by changes in interest rates, the perceived credit quality of the Series D Preferred or Series E Auction Rate Preferred and other factors. The Series D Preferred and/or Series E Auction Rate Preferred are subject to optional and mandatory redemption by the Fund under specified circumstances and investors may not be able to reinvest the proceeds of any such redemption in an investment providing the same or a better rate of return than that of the Series D Preferred or Series E Auction Rate Preferred. Subject to optional and mandatory redemption by the Fund, the Series D Preferred and/or Series E Auction Rate Preferred are perpetual. See "Description of the Series D Preferred and Series E Auction Rate Preferred -- Redemption."
The credit rating on the Series D Preferred or Series E Auction Rate Preferred could be reduced or withdrawn while an investor holds shares, and the credit rating does not eliminate or mitigate the risks of investing in the Series D Preferred or Series E Auction Rate Preferred. A reduction or withdrawal of the credit rating would likely have an adverse effect on the market value of the Series D Preferred or Series E Auction Rate Preferred.
The Series D Preferred and the Series E Auction Rate Preferred are not obligations of the Fund. The Series D Preferred and/or Series E Auction Rate Preferred would be junior in respect of dividends and liquidation preference to any indebtedness incurred by the Fund. Although unlikely, precipitous declines in the value of the Fund's assets could result in the Fund having insufficient assets to redeem all of the Series D Preferred and/or Series E Auction Rate Preferred for the full redemption price.
In addition, the Fund has adopted a policy of distributing to its common stockholders at least 10% of average quarter-end assets attributable to the common stock. In the event investment returns do not provide sufficient amounts to fund such distributions, the Fund may be required to return capital as part of such distribution, which may have the effect of decreasing the asset coverage per share with respect to the Fund's outstanding preferred shares, including the Series D Preferred and Series E Auction Rate Preferred. The Fund has made quarterly distributions with respect to its shares of common stock since 1987. A portion of the returns during nine fiscal years since then have constituted a return of capital.
Leverage Risk. The Fund uses financial leverage for investment purposes by issuing preferred stock. It is currently anticipated that, taking into account the Series D Preferred and/or Series E Auction
Rate Preferred being offered in this prospectus, the amount of leverage will represent approximately 30.5% of the Fund's managed assets (as defined below) as of September 15, 2003. The Fund's leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the asset coverage for the Series D Preferred and/or Series E Auction Rate Preferred. Such volatility may increase the likelihood of the Fund having to sell investments in order to meet dividend or interest payments on the debt or preferred stock, or to redeem preferred stock or repay debt, when it may be disadvantageous to do so. Also, if the Fund is utilizing leverage, a decline in net asset value could affect the ability of the Fund to make common stock dividend payments and such a failure to pay dividends or make distributions could result in the Fund ceasing to qualify as a regulated investment company under the Code. See "Taxation."
Because the fee paid to the Investment Adviser will be calculated on the basis of the Fund's managed assets, which equal the aggregate net asset value of the common stock plus assets attributable to outstanding shares of its preferred stock, with no deduction for the liquidation preference of such shares of preferred stock (rather than only on the basis of net assets attributable to the common stock), the fee may be higher when leverage is utilized, giving the Investment Adviser an incentive to utilize leverage. However, the Investment Adviser has agreed not to accept an incremental fee with respect to any series of its outstanding preferred stock unless the Fund's total return at least equals the cost of capital on such series of the preferred stock. See "Management of the Fund -- General."
Restrictions on Dividends and Other Distributions. Restrictions imposed on the declaration and payment of dividends or other distributions to the holders of the Fund's common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund's ability to maintain its qualification as a regulated investment company for federal income tax purposes. While the Fund intends to redeem its preferred stock (including the Series D Preferred and/or Series E Auction Rate Preferred) to the extent necessary to enable the Fund to distribute its income as required to maintain its qualification as a regulated investment company under the Code, there can be no assurance that such actions can be effected in time to meet the Code requirements. See "Taxation" in the SAI.
Ratings and Asset Coverage Risk. While it is a condition to the closing of the offering that Moody's assigns a rating of "Aaa" to any Series D Preferred and any Series E Auction Rate Preferred, and that S&P assigns a rating of "AAA" to any Series E Auction Rate Preferred, the ratings do not eliminate or necessarily mitigate the risks of investing in Series D Preferred or Series E Auction Rate Preferred. The credit rating on the Series D Preferred or Series E Auction Rate Preferred could be reduced or withdrawn while an investor holds shares, which would likely have an adverse effect on the market value of the Series D Preferred or Series E Auction Rate Preferred. A reduction or withdrawal of the credit ratings on the Series E Auction Rate Preferred may also make your Series E Auction Rate Preferred shares less liquid at an auction or in the secondary market.
In addition, if a rating agency rating the Series E Auction Rate Preferred at the Fund's request downgrades the Series E Auction Rate Preferred, the maximum rate on the Series E Auction Rate Preferred will increase. See "Description of the Series D Preferred and Series E Auction Rate Preferred -- Rating Agency Guidelines" for a description of the asset maintenance tests the Fund must meet. In addition, should the rating on the Fund's preferred stock be lowered or withdrawn by the relevant rating agency, the Fund may also be required to redeem all or part of its outstanding preferred stock.
Special Risks of the Series D Preferred
Illiquidity Prior to Exchange Listing. Prior to the offering, there has been no public market for the Series D Preferred. In the event the Series D Preferred is issued, prior application will have been made to list the Series D Preferred on the NYSE. However, during an initial period, which is not expected to exceed 30 days after the date of its initial issuance, the Series D Preferred may not be listed on any securities exchange. During such period, the underwriters intend to make a market in the Series D Preferred, though, they have no obligation to do so. Consequently, an investment in the Series D Preferred may be illiquid during such period.
Special Risks of the Series E Auction Rate Preferred
Auction Risk. You may not be able to sell your Series E Auction Rate Preferred at an auction if the auction fails, i.e., if there is more Series E Auction Rate Preferred offered for sale than there are buyers for those shares. Also, if you place an order (a hold order) at an auction to retain Series E Auction Rate Preferred only at a specified rate that exceeds the rate set at the auction, you will not retain your Series E Auction Rate Preferred. Additionally, if you place a hold order without specifying a rate below which you would not wish to continue to hold your shares and the auction sets a below-market rate, you will receive a lower rate of return on your shares than the market rate. Finally, the dividend period may be changed, subject to certain conditions and with notice to the holders of the Series E Auction Rate Preferred, which could also affect the liquidity of your investment. See "Description of the Series D Preferred and Series E Auction Rate Preferred" and "The Auction of Series E Auction Rate Preferred."
Secondary Market Risk. If you try to sell your Series E Auction Rate Preferred between auctions, you may not be able to sell them for $25,000 per share or $25,000 per share plus accumulated dividends. If the Fund has designated a special dividend period of more than seven days, changes in interest rates could affect the price you would receive if you sold your shares in the secondary market. Broker-dealers that maintain a secondary trading market for the Series E Auction Rate Preferred are not required to maintain this market, and the Fund is not required to redeem Series E Auction Rate Preferred if either an auction or an attempted secondary market sale fails because of a lack of buyers. The Series E Auction Rate Preferred is not registered on a stock exchange or the NASDAQ stock market. If you sell your Series E Auction Rate Preferred to a broker-dealer between auctions, you may receive less than the price you paid for them, especially when market interest rates have risen since the last auction or during a special dividend period.
Long-term Objective
The Fund is intended for investors seeking long-term capital growth. The Fund is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. An investment in shares of the Fund should not be considered a complete investment program. Each stockholder should take into account the Fund's investment objectives as well as the stockholder's other investments when considering an investment in the Fund.
Non-diversified Status
The Fund is classified as a "non-diversified" investment company under the 1940 Act, which means the Fund is not limited by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer. However, the Fund has in the past conducted and intends to conduct its operations so as to qualify as a "regulated investment company," or RIC, for purposes of the Code, which will relieve it of any liability for federal income tax to the extent its earnings are distributed to stockholders. To qualify as a "regulated investment company," among other requirements, the Fund will limit its investments so that, with certain exceptions, at the close of each quarter of the taxable year:
o not more than 25% of the market value of its total assets will be invested in the securities (other than U.S. government securities or the securities of other RICs) of a single issuer or any two or more issuers that the Fund controls and which are determined to be engaged in the same, similar or related trades or businesses; and
o at least 50% of the market value of the Fund's assets will be represented by cash, securities of other regulated investment companies, U.S. government securities and other securities, with such other securities limited in respect of any one issuer to an amount not greater than 5% of the value of the Fund's assets and not more than 10% of the outstanding voting securities of such issuer.
As a non-diversified investment company, the Fund may invest in the securities of individual issuers to a greater degree than a diversified investment company. As a result, the Fund may be more vulnerable to events affecting a single issuer and therefore, subject to greater volatility than a fund that is more broadly diversified. Accordingly, an investment in the Fund may present greater risk to an investor than an investment in a diversified company.
Market Value and Net Asset Value
The Fund is a closed-end, non-diversified, management investment company. Shares of closed- end funds are bought and sold in the securities markets and may trade at either a premium or discount from net asset value. Listed shares of closed-end investment companies frequently trade at a discount from net asset value. This characteristic of stock of a closed-end fund is a risk separate and distinct from the risk that the Fund's net asset value will decrease. The Fund cannot predict whether its listed stock will trade at, below or above net asset value. Stockholders desiring liquidity may, subject to applicable securities laws, trade their common stock in the Fund on the NYSE or other markets on which such stock may trade at the then-current market value, which may differ from the then-current net asset value. Stockholders will incur brokerage or other transaction costs to sell stock.
Lower Rated Securities
The Fund may invest up to 10% of its total assets in fixed-income securities rated in the lower rating categories of recognized statistical rating agencies. These high yield securities, also sometimes referred to as "junk bonds," generally pay a premium above the yields of U.S. government securities or debt securities of investment grade issuers because they are subject to greater risks than these securities. These risks, which reflect their speculative character, include the following:
o greater volatility;
o greater credit risk;
o potentially greater sensitivity to general economic or industry conditions;
o potential lack of attractive resale opportunities (illiquidity); and
o additional expenses to seek recovery from issuers who default.
The market value of lower-rated securities may be more volatile than the market value of higher- rated securities and generally tends to reflect the market's perception of the creditworthiness of the issuer and short-term market developments to a greater extent than more highly rated securities, which primarily reflect fluctuations in general levels of interest rates.
Ratings are relative and subjective and not absolute standards of quality. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition.
As a part of its investment in lower rated fixed-income securities, the Fund may invest in the securities of issuers in default. The Fund will invest in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations and emerge from bankruptcy protection and that the value of such issues' securities will appreciate. By investing in the securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy protection or that the value of these securities will not appreciate.
For a further description of lower rated securities and the risks associated therewith, see "Investment Objectives and Policies -- Investment Practices" in the SAI. For a description of the ratings categories of certain recognized statistical ratings agencies, see Appendix A to this prospectus.
Foreign Securities
The Fund may invest up to 35% of its total assets in foreign securities. Investments in the securities of foreign issuers involve certain considerations and risks not ordinarily associated with investments in securities of domestic issuers. Foreign companies are not generally subject to uniform accounting, auditing and financial standards and requirements comparable to those applicable to U.S. companies. Foreign securities exchanges, brokers and listed companies may be subject to less government supervision and regulation than exists in the United States. Dividend and interest income may be subject to withholding and other foreign taxes, which may adversely affect the net return on such investments. There may be difficulty in obtaining or enforcing a court judgment abroad. In addition, it may be difficult to effect repatriation of capital invested in certain countries. In addition, with respect to certain countries, there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments that could affect assets of the Fund held in foreign countries.
There may be less publicly available information about a foreign company than a U.S. company. Foreign securities markets may have substantially less volume than U.S. securities markets and some foreign company securities are less liquid than securities of otherwise comparable U.S. companies. A portfolio of foreign securities may also be adversely affected by fluctuations in the rates of exchange between the currencies of different nations and by exchange control regulations. Foreign markets also have different clearance and settlement procedures that could cause the Fund to encounter difficulties in purchasing and selling securities on such markets and may result in the Fund missing attractive investment opportunities or experiencing loss. In addition, a portfolio that includes foreign securities can expect to have a higher expense ratio because of the increased transaction costs on non-U.S. securities markets and the increased costs of maintaining the custody of foreign securities. The Fund does not have an independent limit on the amount of its assets that it may invest in the securities of foreign issuers.
The Fund also may purchase sponsored American Depository Receipts ("ADRs") or U.S. denominated securities of foreign issuers. ADRs are receipts issued by United States banks or trust companies in respect of securities of foreign issuers held on deposit for use in the United States securities markets. While ADRs may not necessarily be denominated in the same currency as the securities into which they may be converted, many of the risks associated with foreign securities may also apply to ADRs. In addition, the underlying issuers of certain depository receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute stockholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities.
Interest Rate Transactions
The Fund has entered into an interest rate swap transaction with respect to its outstanding Series C Auction Rate Preferred, and may enter into an interest rate swap or cap transaction with respect to all or a portion of the Series E Auction Rate Preferred. The use of interest rate swaps and caps is a highly specialized activity that involves certain risks to the Fund including, among others, counterparty risk and early termination risk. See "How the Fund Manages Risk -- Interest Rate Transactions."
Futures Transactions
Futures and options on futures entail certain risks, including but not limited to the following:
o no assurance that futures contracts or options on futures can be offset at favorable prices;
o possible reduction of the yield of the Fund due to the use of hedging;
o possible reduction in value of both the securities hedged and the hedging instrument;
o possible lack of liquidity due to daily limits or price fluctuations;
o imperfect correlation between the contracts and the securities being hedged; and
o losses from investing in futures transactions that are potentially unlimited and the segregation requirements for such transactions.
For a further description of the Fund's investments in futures, see "Investment Objectives and Policies -- Investment Practices" in the SAI.
Forward Currency Exchange Contracts
The use of forward currency contracts may involve certain risks, including the failure of the counter party to perform its obligations under the contract and that the use of forward contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices of the currencies hedged or used for cover. For a further description of such investments, see "Investment Objectives and Policies -- Investment Practices" in the SAI.
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing advisory services with respect to the Fund's investments. If the Investment Adviser were to lose the services of Mr. Gabelli, its ability to service the Fund could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr. Gabelli in the event of his death, resignation, retirement or inability to act on behalf of the Investment Adviser.
Current Market Uncertainties
The war with Iraq, its aftermath and the continuing occupation of Iraq are likely to have a substantial impact on the U.S. and world economies and securities markets. The nature, scope and duration of the occupation cannot be predicted with any certainty. Terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001 closed some of the U.S. markets for a four-day period and
the occurrence of similar events in the future cannot be ruled out. The war and occupation, terrorism and related geopolitical risks have led, and may in the future lead to, increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets generally. Those events could also have an acute effect on individual issuers or related groups of issuers. These risks could also adversely affect individual issuers or related groups of issuers, securities markets, interest rates, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the Series D Preferred and/or Series E Auction Rate Preferred.
Anti-takeover Provisions
The Fund's Charter includes provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. See "Anti-takeover Provisions of the Fund's Charter."
HOW THE FUND MANAGES RISK
Investment Restrictions
The Fund has adopted certain investment limitations designed to limit investment risk and maintain portfolio diversification. Under the 1940 Act, a fundamental policy may not be changed without the vote of a majority, as defined in the 1940 Act, of the outstanding voting securities of the Fund (voting together as a single class). In addition, pursuant to the Fund's Articles Supplementary, a majority, as defined in the 1940 Act, of the outstanding preferred stock of the Fund (voting separately as a single class) is also required to change a fundamental policy. The Fund may become subject to guidelines that are more limiting than the investment restrictions set forth above in order to obtain and maintain ratings from Moody's or S&P on its preferred stock.
Interest Rate Transactions
The Fund has entered into an interest rate swap transaction with respect to its outstanding Series C Auction Rate Preferred and may enter into interest rate swap or cap transactions in relation to all or a portion of the Series E Auction Rate Preferred in order to manage the impact on its portfolio of changes in the dividend rate of the Series E Auction Rate Preferred. Through these transactions the Fund may, for example, obtain the equivalent of a fixed rate for such auction rate preferred stock that is lower than the Fund would have to pay if it issued fixed rate preferred stock.
The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund would agree to pay to the other party to the interest rate swap (which is known as the "counterparty") periodically a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund periodically a variable rate payment that is intended to approximate the Fund's variable rate payment obligation on its auction rate preferred stock. In an interest rate cap, the Fund would pay a premium to the counterparty to the interest rate cap and, to the extent that a specified variable rate index exceeds a predetermined fixed rate, would receive from the counterparty payments of the difference based on the notional amount of such cap. Interest rate swap and cap transactions introduce additional risk because the Fund would remain obligated to pay preferred stock dividends when due in accordance with the Articles Supplementary even if the counterparty defaulted. Depending on the general state of short-term interest rates and the returns on the Fund's portfolio securities at that point in time, such a default could negatively affect the Fund's ability to make dividend payments on the Series D Preferred and Series E Auction Rate Preferred. In addition, at the time an interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction. If
this occurs, it could have a negative impact on the Fund's ability to make dividend payments on the Series D Preferred and Series E Auction Rate Preferred. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, resulting in a decline in the asset coverage for the Series D Preferred and Series E Auction Rate Preferred. A sudden and dramatic decline in interest rates may result in a significant decline in the asset coverage. Under the Articles Supplementary, if the Fund fails to maintain the required asset coverage on the outstanding preferred stock (including the Series D Preferred and Series E Auction Rate Preferred) or fails to comply with other covenants, the Fund may be required to redeem some or all of these shares. The Fund may also choose to redeem some or all of the Series E Auction Rate Preferred at any time. Such redemption would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transaction. Early termination of a swap could result in a termination payment by the Fund to the counterparty, while early termination of a cap could result in a termination payment to the Fund.
The Fund will usually enter into swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund intends to segregate cash or liquid securities having a value at least equal to the value of the Fund's net payment obligations under any swap transaction, marked to market daily. The Fund does not presently intend to enter into interest rate swap or cap transactions relating to Series E Auction Rate Preferred in a notional amount in excess of the outstanding amount of the Series E Auction Rate Preferred. The Fund will monitor any such swap with a view to ensuring that the Fund remains in compliance with all applicable regulatory investment policy and tax requirements.
MANAGEMENT OF THE FUND
General
The Fund's Directors (who, with its officers, are described in the SAI) has overall responsibility for the management of the Fund. The Board decides upon matters of general policy and reviews the actions of the Investment Adviser, Gabelli Funds, LLC, located at One Corporate Center, Rye, New York 10580-1422, and the Sub-Administrator (as defined below). Pursuant to an Investment Advisory Agreement with the Fund, the Investment Adviser, under the supervision of the Fund's Board of Directors, provides a continuous investment program for the Fund's portfolio; provides investment research and makes and executes recommendations for the purchase and sale of securities; provides all facilities and personnel, including officers required for its administrative management; and pays the compensation of all officers and directors of the Fund who are its affiliates. As compensation for its services and the related expenses borne by the Investment Adviser, the Fund pays the Investment Adviser a fee, computed daily and payable monthly, equal, on an annual basis, to 1.00% of the Fund's average weekly net assets. However, the Investment Adviser had voluntarily agreed to waive the portion of its investment advisory fee attributable to an amount of assets of the Fund equal to the aggregate stated value of, as the case may be, its outstanding Series D Preferred and/or Series E Auction Rate Preferred for any calendar year in which the net asset value total return of the Fund allocable to the common stock, including distributions and the advisory fee subject to potential waiver, is less than (i) in the case of the Series D Preferred, the stated annual dividend rate of such series and (ii) in the case of the Series E Auction Rate Preferred, the net cost of capital to the Fund with respect to the Series E Auction Rate Preferred for such year expressed as a percentage (including, without duplication, dividends paid by the Fund on the Series E Auction Rate Preferred and the net cost to the Fund of any associated swap or cap transaction if the Fund hedges its Series E Auction Rate Preferred dividend obligations). This waiver will apply to the portion of the Fund's assets attributable to the Series D Preferred and Series E Auction Rate Preferred, respectively, for so long as any shares of such series remain outstanding. The Investment Adviser has voluntarily agreed to similar waivers with respect to the Fund's outstanding Series B Preferred and Series C Auction Rate Preferred.
For purposes of the calculation of the fees payable to the Investment Adviser by the Fund, average weekly net assets of the Fund are determined at the end of each month on the basis of its average net assets for each week during the month. The assets for each weekly period are determined by averaging the net assets at the end of a week with the net assets at the end of the prior week.
The Investment Adviser
Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to an advisory agreement with the Fund. The Investment Adviser is a New York corporation with principal offices located at One Corporate Center, Rye, New York 10580. The Investment Adviser was organized in 1999 and is the successor to Gabelli Funds, Inc., which was organized in 1980. As of June 30, 2003, the Investment Adviser acted as registered investment adviser to 19 management investment companies with aggregate net assets of $9.3 billion. The Investment Adviser, together with other affiliated investment advisers noted below had assets under management totaling approximately $21.9 billion as of June 30, 2003. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing trusts and endowments, and as a sub-adviser to management investment companies having aggregate assets of $10.8 billion under management as of June 30, 2003. Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as investment adviser for The Treasurer's Fund and separate accounts having aggregate assets of $1.2 billion under management as of June 30, 2003. Gabelli Advisers, Inc., an affiliate of the Investment Adviser, acts as investment manager to the Gabelli Westwood Funds having aggregate assets of $493 million under management as of June 30, 2003.
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset Management Inc., a New York corporation, whose Class A Common Stock is traded on the NYSE under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a "controlling person" of the Investment Adviser on the basis of his ownership of a majority of the stock of the Gabelli Group Capital Partners, Inc., which owns a majority of the capital stock of Gabelli Asset Management Inc.
Payment of Expenses
The Investment Adviser is obligated to pay expenses associated with providing the services contemplated by the Investment Advisory Agreement between the Fund and the Investment Adviser (the "Advisory Agreement") including compensation of and office space for its officers and employees connected with investment and economic research, trading and investment management and administration of the Fund, as well as the fees of all directors of the Fund who are affiliated with the Investment Adviser. The Fund pays all other expenses incurred in its operation including, among other things, expenses for legal and independent accountants' services, costs of printing proxies, stock certificates and stockholder reports, charges of the custodian, any subcustodian and transfer and dividend paying agent, expenses in connection with its respective automatic dividend reinvestment and voluntary cash purchase plan, SEC fees, fees and expenses of unaffiliated directors, accounting and pricing costs, including costs of calculating the net asset value of the Fund, membership fees in trade associations, fidelity bond coverage for its officers and employees, directors' and officers' errors and omission insurance coverage, interest, brokerage costs, taxes, stock exchange listing fees and expenses, expenses of qualifying its stock for sale in various states, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Fund.
In addition to the fees of the Investment Adviser, the Fund is responsible for the payment of all its other expenses incurred in the operation of the Fund, which include, among other things, expenses for legal and independent accountant's services, stock exchange listing fees, expenses relating to the offering of preferred stock, rating agency fees, costs of printing proxies, stock certificates and stockholder reports, charges of State Street Bank and Trust Company ("State Street" or the "Custodian"), charges of EquiServe and The Bank of New York, SEC fees, fees and expenses of unaffiliated directors, accounting and printing costs, the Fund's pro rata portion of membership fees in trade organizations, fidelity bond coverage for the
Fund's officers and employees, interest, brokerage costs, taxes, expenses of qualifying the Fund for sale in various states, expenses of personnel performing stockholder servicing functions, litigation and other extraordinary or non-recurring expenses and other expenses properly payable by the Fund.
Selection of Securities Brokers
The Investment Advisory Agreement contains provisions relating to the selection of securities brokers to effect the portfolio transactions of the Fund. Under those provisions, the Investment Adviser may (i) direct Fund portfolio brokerage to Gabelli & Company, Inc. or other broker-dealer affiliates of the Investment Adviser and (ii) pay commissions to brokers other than Gabelli & Company, Inc. that are higher than might be charged by another qualified broker to obtain brokerage and/or research services considered by the Investment Adviser to be useful or desirable for its investment management of the Fund and/or its other advisory accounts or those of any investment adviser affiliated with it. The SAI contains further information about the Investment Advisory Agreement including a more complete description of the advisory and expense arrangements, exculpatory and brokerage provisions, as well as information on the brokerage practices of the Fund.
Portfolio Manager
Mario J. Gabelli is currently and has been responsible for the day-to-day management of the Fund since its formation. Mr. Gabelli has served as Chairman, President and Chief Investment Officer of the Investment Adviser since 1980. Mr. Gabelli also serves as Portfolio Manager for several other funds in the Gabelli fund family. Because of the diverse nature of Mr. Gabelli's responsibilities, he will devote less than all of his time to the day-to-day management at the Fund. Over the past five years, Mr. Gabelli has served as Chairman of the Board and Chief Executive Officer of Gabelli Asset Management Inc.; Chief Investment Officer of GAMCO Investors, Inc.; and Vice Chairman of the Board of Lynch Corporation, a diversified manufacturing company, and Vice Chairman of the Board and Chief Executive Officer of Lynch Interactive Corporation, a multimedia and communications services company.
A portion of the Fund's foreign holdings are managed by Caesar Bryan. For the last five years, Mr. Bryan has served as the portfolio manager of the Gabelli International Growth Fund and as co-manager of the Gabelli Global Opportunity Fund and the Gabelli Global Growth Fund.
Non-resident Director
Karl Otto Pohl, a director of the Fund, resides outside the United States and all or a significant portion of his assets are located outside the United States. Mr. Pohl does not have an authorized agent in the United States to receive service of process. As a result, it may not be possible for investors to effect service of process within the United States or to enforce against Mr. Pohl in United States courts judgments predicated upon civil liability provisions of United States securities laws. It may also not be possible to enforce against Mr. Pohl in foreign courts judgments of United States courts or liabilities in original actions predicated upon civil liability provisions of the United States securities laws.
Sub-Administrator
The Investment Adviser has entered into sub-administration agreement with PFPC Inc. (the "Sub- Administrator") pursuant to which the Sub-Administrator provides certain administrative services necessary for the Fund's operations which do not include the investment advisory and portfolio management services provided by the Investment Adviser. For these services and the related expenses borne by the Sub-Administrator, the Investment Adviser pays a prorated monthly fee at the annual rate of .0275% of the first $10.0 billion of the aggregate average net assets of the Fund and all other funds advised by the Investment Adviser and administered by the Sub-Administrator, .0125% of the aggregate average net
assets exceeding $10 billion and .01% of the aggregate average net assets in excess of $15 billion. The Sub-Administrator has its principal office at 760 Moore Road, King of Prussia, Pennsylvania 19406.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Fund. However, Gabelli & Company, Inc., an affiliate of the Investment Adviser, may execute portfolio transactions on stock exchanges and in the over-the-counter markets on an agency basis and receive a stated commission therefor. For a more detailed discussion of the Fund's brokerage allocation practices, see "Portfolio Transactions" in the SAI.
DIVIDENDS AND DISTRIBUTIONS
The Fund may retain for reinvestment, and pay the resulting federal income taxes on, its net capital gain, if any, although the Fund reserves the authority to distribute its net capital gain in any year. The Fund has a policy, which may be modified at any time by its Board of Directors, of paying quarterly distributions on its common stock of 10% of the Fund's quarterly net asset value attributable to common stock. This policy permits holders of common stock to realize a predictable, but not assured, level of cash flow and some liquidity periodically with respect to their common stock without having to sell shares. To avoid paying income tax at the corporate level, the Fund will distribute substantially all of its investment company taxable income and net capital gain. In the event that the Fund's investment company taxable income and net capital gain exceed the total of the Fund's monthly distributions, the Fund intends to pay such excess once a year. If, for any calendar year, the total quarterly distributions exceed investment company taxable income and net capital gain, the excess will generally be treated as a tax-free return of capital up to the amount of a stockholder's tax basis in the stock. The amount treated as a tax-free return of capital will reduce a stockholder's tax basis in the stock, thereby increasing such stockholder's potential gain or reducing his or her potential loss on the sale of the stock. Any amounts distributed to a stockholder in excess of the basis in the stock will be taxable to the stockholder as capital gain. See "Taxation" below.
In the event the Fund distributes amounts in excess of its investment company taxable income and net capital gain, such distributions will decrease the Fund's total assets and, therefore, have the likely effect of increasing the Fund's expense ratio. In addition, in order to make such distributions, the Fund might have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such action.
The Fund, along with other closed-end registered investment companies advised by the Investment Adviser, has obtained an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to make periodic distributions of long-term capital gains provided that any distribution policy of the Fund with respect to its common stock calls for periodic (e.g., quarterly or semi- annually, but in no event more frequently than monthly) distributions in an amount equal to a fixed percentage of the Fund's average net asset value over a specified period of time or market price per share of common stock at or about the time of distribution or pay-out of a fixed dollar amount. The exemption also permits the Fund to make distributions with respect to its preferred stock in accordance with such stock's terms.
DESCRIPTION OF THE SERIES D PREFERRED
AND SERIES E AUCTION RATE PREFERRED
The Fund offers by this prospectus, in the aggregate, $125 million of preferred stock of either Series D Preferred or Series E Auction Rate Preferred, or a combination of both such series. The following is a brief description of the terms of each of the Series D Preferred and the Series E Auction Rate Preferred. This description does not purport to be complete and is qualified by reference to the Fund's Charter, including the provisions of the Articles Supplementary establishing each of the Series D Preferred and the Series E Auction Rate Preferred. For complete terms of the Series D Preferred or the Series E Auction Rate Preferred, including definitions of terms used in this prospectus, please refer to the actual terms of such series, which are set forth in the applicable Articles Supplementary.
General
Under its Charter, the Fund is authorized to issue up to 200,000,000 shares of capital stock. The Fund is authorized to issue up to 16,000,000 shares of preferred stock. Up to 6,006,000 shares of preferred stock may be designated as Series D Preferred and/or Series E Auction Rate Preferred. No fractional shares of either series will be issued. The Board of Directors reserves the right to issue additional shares of preferred stock, including Series D Preferred or Series E Auction Rate Preferred, from time to time, subject to the restrictions in the Fund's Charter and the 1940 Act.
If and when issued, the Series D Preferred will have a liquidation preference of $25 per share and the Series E Auction Rate Preferred will have a liquidation preference of $25,000 per share. Upon a liquidation, each holder of Series D Preferred or Series E Auction Rate Preferred will be entitled to receive out of the assets of the Fund available for distribution to stockholders (after payment of claims of the Fund's creditors but before any distributions with respect to the Fund's common stock or any other stock of the Fund ranking junior to the Series D Preferred and Series E Auction Rate Preferred as to liquidation payments) an amount per share equal to such share's liquidation preference plus any accumulated but unpaid dividends (whether or not earned or declared) to the date of distribution and such stockholders shall be entitled to no further participation in any distribution or payment in connection with such liquidation. The Series D Preferred and the Series E Auction Rate Preferred will rank on a parity with shares of any other series of preferred stock of the Fund as to the payment of dividends and the distribution of assets upon liquidation. Series D Preferred and Series E Auction Rate Preferred shares each carry one vote per share on all matters on which such stock is entitled to vote. The Series D Preferred and the Series E Auction Rate Preferred will, upon issuance, be fully paid and nonassessable and will have no preemptive, exchange or conversion rights. Any Series D Preferred or Series E Auction Rate Preferred repurchased or redeemed by the Fund will be classified as authorized but unissued preferred stock. The Board of Directors may by resolution classify or reclassify any authorized but unissued capital stock of the Fund from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or terms or conditions of redemption. The Fund may not issue any class of stock senior to the Series D Preferred and/or Series E Auction Rate Preferred.
Rating Agency Guidelines
Upon issuance, both the Series D Preferred and the Series E Auction Rate Preferred will be rated "Aaa" by Moody's. In addition, the Series E Auction Rate Preferred will also be rated "AAA" by S&P. The Fund is required under Moody's and S&P guidelines to maintain assets having in the aggregate a discounted value at least equal to the Basic Maintenance Amount (as defined below) for its outstanding preferred stock, including any outstanding Series D Preferred or Series E Auction Rate Preferred, with respect to the separate guidelines Moody's and S&P has each established for determining discounted value. To the extent any particular portfolio holding does not satisfy the applicable rating agency's
guidelines, all or a portion of such holding's value will not be
included in the calculation of discounted value (as defined by such rating
agency). The Moody's and S&P guidelines also impose certain diversification
requirements and industry concentration limitations on the Fund's overall
portfolio, and apply specified discounts to securities held by the Fund (except
certain money market securities). The "Basic Maintenance Amount" is equal to
(i) the sum of (a) the aggregate liquidation preference of the preferred stock
then outstanding plus (to the extent not included in the liquidation preference
of such preferred stock) an amount equal to the aggregate accumulated but
unpaid dividends (whether or not earned or declared) in respect of such
preferred stock, (b) the total principal of any debt (plus accrued and
projected interest), (c) certain Fund expenses and (d) certain other current
liabilities (excluding any unpaid dividends on the Fund's common stock) less
(ii) the Fund's (a) cash and (b) assets consisting of indebtedness which (x)
are to mature prior to or on the date of redemption or repurchase of the
preferred stock, (y) are U.S. Government Obligations or evidences of
indebtedness rated at least Aaa, P-1, VMIG-1 or MIG-1 by Moody's or AAA, SP-1+
or A-1+ by Standard and Poor's, and (z) are held by the Fund for the payment of
dividends or distributions, the amounts needed to redeem or repurchase
preferred stock, or the Fund's liabilities.
If the Fund does not timely cure a failure to maintain a discounted value of its portfolio equal to the Basic Maintenance Amount in accordance with the requirements of the applicable rating agency or agencies then rating the Series D Preferred or the Series E Auction Rate Preferred at the request of the Fund, the Fund may, and in certain circumstances will be required to, mandatorily redeem preferred stock, including the Series D Preferred or the Series E Auction Rate Preferred, as described below under " -- Redemption."
The Fund may, but is not required to, adopt any modifications to the rating agency guidelines that may hereafter be established by Moody's or S&P. Failure to adopt any such modifications, however, may result in a change in the relevant rating agency's ratings or a withdrawal of such ratings altogether. In addition, any rating agency providing a rating for the Series D Preferred or the Series E Auction Rate Preferred at the request of the Fund may, at any time, change or withdraw any such rating. The Board of Directors, without further action by the stockholders, may amend, alter, add to or repeal certain of the definitions and related provisions that have been adopted by the Fund pursuant to the rating agency guidelines if the Board determines that such modification is necessary to prevent a reduction in rating of the shares of preferred stock by Moody's and/or S&P, as the case may be, is in the best interests of the holders of shares of common stock and is not adverse to the holders of preferred stock in view of advice to the Fund by Moody's and/or S&P (or such other rating agency then rating the Series D Preferred and/or Series E Auction Rate Preferred at the request of the Fund) that such modification would not adversely affect, as the case may be, its then current rating of the Series D Preferred and/or the Series E Auction Rate Preferred.
The Board of Directors may amend the Articles Supplementary definition of "Maximum Rate" (the "maximum rate" as defined below under " -- Dividends on the Series E Auction Rate Preferred -- Maximum Rate") to increase the percentage amount by which the applicable reference rate is multiplied to determine the maximum rate without the vote or consent of the holders of Series E Auction Rate Preferred or any other stockholder of the Fund, but only after consultation with the broker-dealers and with confirmation from each applicable rating agency that the Fund could meet applicable rating agency asset coverage tests immediately following any such increase
As described by Moody's and S&P, the ratings assigned to the Series D Preferred and the Series E Auction Rate Preferred are assessments of the capacity and willingness of the Fund to pay the obligations of each of the Series D Preferred and the Series E Auction Rate Preferred. The ratings on the Series D Preferred and the Series E Auction Rate Preferred are not recommendations to purchase, hold or sell shares of either series, inasmuch as the ratings do not comment as to market price or suitability for a particular investor. The rating agency guidelines also do not address the likelihood that an owner of
Series D Preferred or Series E Auction Rate Preferred will be able to sell such shares on an exchange, in an auction or otherwise. The ratings are based on current information furnished to Moody's and S&P by the Fund and the Investment Adviser and information obtained from other sources. The ratings may be changed, suspended or withdrawn as a result of changes in, or the unavailability of, such information.
The rating agency guidelines will apply to the Series D Preferred or Series E Auction Rate Preferred, as the case may be, only so long as such rating agency is rating such shares at the request of the Fund. The Fund will pay fees to Moody's and S&P for rating the Series D Preferred and the Series E Auction Rate Preferred.
Asset Maintenance Requirements
In addition to the requirements summarized under " -- Rating Agency Guidelines" above, the Fund must also satisfy asset maintenance requirements under the 1940 Act with respect to its preferred stock. The 1940 Act requirements are summarized below.
The Fund will be required under the Articles Supplementary for each of the Series D Preferred and/or Series E Auction Rate Preferred to determine whether it has as of the last business day of each March, June, September and December of each year, an "asset coverage" (as defined in the 1940 Act) of at least 200% (or such higher or lower percentage as may be required at the time under the 1940 Act) with respect to all outstanding senior securities of the Fund that are stock, including any outstanding Series D Preferred and the Series E Auction Rate Preferred. If the Fund fails to maintain the asset coverage required under the 1940 Act on such dates and such failure is not cured within 60 calendar days, in the case of the Series D Preferred, or 10 business days, in the case of the Series E Auction Rate Preferred, (including the Series D Preferred or Series E Auction Rate Preferred) the Fund may, and in certain circumstances will be required to, mandatorily redeem shares of preferred stock sufficient to satisfy such asset coverage. See " -- Redemption" below.
If the shares of Series D Preferred and/or Series E Auction Rate Preferred offered hereby had been issued and sold as of September 15, 2003 , the asset coverage required under the 1940 Act deduction of the underwriting discounts and estimated offering expenses for such shares of $3,352,500), would have been computed as follows:
value of Fund assets less liabilities not constituting senior securities ($1,374,744,505) / senior securities representing indebtedness plus liquidation preference of each class of preferred stock ($420,000,000, expressed as a percentage = 327%.
Dividends on the Series D Preferred
Upon issuance of the Series D Preferred (if issued), holders of shares of Series D Preferred will be entitled to receive, when, as and if declared by the Board of Directors of the Fund out of funds legally available therefor, cumulative cash dividends, at the annual rate of [__]% (computed on the basis of a 360- day year consisting of twelve 30-day months) of the liquidation preference of $25 per share, payable quarterly on March 26, June 26, September 26 and December 26 in each year or, if any such day is not a business day, the immediately succeeding business day. Such dividends will commence on [__], 2003, and will be payable to the persons in whose names the shares of Series D Preferred are registered at the close of business on the fifth preceding business day.
Dividends on the Series E Auction Rate Preferred
General. Upon issuance of the Series E Auction Rate Preferred (if issued), the holders of Series E Auction Rate Preferred will be entitled to receive cash dividends stated at annual rates as a percentage of its $25,000 per share liquidation preference, that will vary from dividend period to dividend period. The dividend rate for the initial dividend period for any Series E Auction Rate Preferred offered in this prospectus will be the rate set out on the cover of this prospectus. For subsequent dividend periods, the Series E Auction Rate Preferred will pay dividends based on a rate set at the auction, normally held weekly, but the rates set at the auction will not exceed the maximum rate. Dividend periods generally will be seven days, and the dividend periods generally will begin on the first business day after an auction. In most instances, dividends will also be paid weekly, on the business day following the end of the dividend period. The Fund, subject to some limitations, may change the length of the dividend periods, designating them as "special dividend periods," as described below.
Dividend Payments. Except as described below, the dividend payment date will be the first business day after the dividend period ends. The dividend payment dates for special dividend periods of more (or less) than seven days will be set out in the notice designating a special dividend period. See " -- Designation of Special Dividend Periods" for a discussion of payment dates for a special dividend period.
Dividends on Series E Auction Rate Preferred will be paid on the dividend payment date to holders of record as their names appear on the Fund's stock ledger or stock records on the business day next preceding the dividend payment date. If dividends are in arrears, they may be declared and paid at any time to holders of record as their names appear on the Fund's stock ledger or stock records on a date not more than 15 days before the payment date, as the Fund's Board of Directors may fix.
The dividend paying agent, in accordance with its current procedures, is expected to credit in same-day funds on each dividend payment date dividends received from the Fund to the accounts of broker-dealers who act on behalf of holders of the Series E Auction Rate Preferred. Such broker-dealers, in turn, are expected to distribute dividend payments to the person for whom they are acting as agents. If a broker-dealer does not make dividends available to Series E Auction Rate Preferred holders in same-day funds, these stockholders will not have funds available until the next business day.
Dividend Rate Set at Auction. The Series E Auction Rate Preferred pays dividends based on a rate set at auction at which Series E Auction Rate Preferred may be bought and sold. The auction usually is held weekly, but may be held more or less frequently. The Bank of New York, the auction agent, reviews orders from broker-dealers on behalf of existing holders who wish to sell, hold at the auction rate, or hold only at a specified dividend rate, and on behalf of potential holders who wish to buy Series E Auction Rate Preferred. The auction agent then determines the lowest dividend rate that will result in all of the Series E Auction Rate Preferred continuing to be held. See "The Auction of Series E Auction Rate Preferred."
If an auction is not held because an unforeseen event, or unforeseen events cause a day that otherwise would have been an auction date not to be a business day, then the length of the then-current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events), the applicable rate for such period will be the applicable rate for the then- current dividend period so extended and the dividend payment date for such dividend period will be the first business day immediately succeeding the end of such period.
Determination of Dividend Rates. The Fund computes the dividends per share by multiplying the applicable rate determined at the auction by a fraction, the numerator of which normally is the number of days in such dividend period and the denominator of which is 360. This applicable rate is then multiplied by $25,000 to arrive at the dividend per share.
Maximum Rate. The dividend rate that results from an auction for the Series E Auction Rate Preferred will not be greater than the applicable "maximum rate." The maximum rate means (i) in the case of a dividend period of 184 days or less, the applicable percentage of the "AA" Financial Composite Commercial Paper Rate on the date of such auction determined as set forth in the following chart based on the lower of the credit ratings assigned to the Series E Auction Rate Preferred by Moody's and S&P or (ii) in the case of a dividend period of longer than 184 days, the applicable percentage of the Treasury Index Rate.
Moody's Credit Rating S&P Credit Rating Applicable Percentage
--------------------- ----------------- ---------------------
Aa3 or higher AA- or higher 150%
A3 to A1 A- to A+ 175%
Baa3 to Baa1 BBB- to BBB+ 250%
Below Baa3 Below BBB- 275%
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The "Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable dividend period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all dividend periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, that if the most recent such statistical release will not have been published during the 15 days preceding the date of computation, the foregoing computations will be based upon the average of comparable data as quoted to the Fund by at least three recognized dealers in U.S. government securities selected by the Fund.
There is no minimum dividend rate in respect of any dividend period.
Effect of Failure to Pay Dividends in a Timely Manner. If the Fund fails to pay the paying agent the full amount of any dividend for the Series E Auction Rate Preferred in a timely manner, but the Fund cures the failure and pays any late charge before 12:00 noon, New York City time on the third business day following the date the failure occurred, no default will be deemed to have occurred and the dividend rate for the dividend period immediately following the dividend with respect to which the dividend payment default would otherwise have occurred will be the applicable rate set at the auction for such dividend period.
However, if the Fund does not effect a timely cure, the dividend rate for the Series E Auction Rate Preferred for such default period, and any subsequent dividend period for which such default is continuing, will be the default rate. In the event the Fund fully pays all default amounts due during a dividend period, the dividend rate for the remainder of that dividend period will be, as the case may be, the applicable rate (for the first dividend period following a dividend default) or the then-maximum rate (for any subsequent dividend period for which such default is continuing).
The default rate means 300% of the applicable "AA" Financial Composite Commercial Paper Rate for a dividend period of 184 days or fewer and 300% of the applicable Treasury Index Rate for a dividend period of longer than 184 days. Late charges are also calculated at the applicable default rate.
Designation of Special Dividend Periods. The Fund may instruct the auction agent to hold auctions more or less frequently than weekly and may designate dividend periods longer or shorter than one week. The Fund may do this if, for example, the Fund expects that short-term rates might increase or market conditions otherwise change, in an effort to optimize the effect of the Fund's leverage on holders of its common stock. The Fund does not currently expect to hold auctions and pay dividends less frequently than weekly or establish dividend periods longer or shorter than one week. If the Fund designates a special dividend period, changes in interest rates could affect the price received if shares of Series E Auction Rate Preferred are sold in the secondary market.
Any designation of a special dividend period will be effective only
if (i) notice thereof will have been given as provided for in the Charter,
(ii) any failure to pay in a timely matter to the auction agent the full
amount of any dividend on, or the redemption price of, the Series E Auction
Rate Preferred will have been cured as provided for in the Charter, (iii) the
auction immediately preceding the special dividend period was not a failed
auction, (iv) if the Fund will have mailed a notice of redemption with respect
to Series E Auction Rate Preferred, the Fund will have deposited with the
paying agent all funds necessary for such redemption, and (v) the Fund has
confirmed that as of the auction date next preceding the first day of such
special dividend period, it has assets with an aggregate discounted value at
least equal to the Basic Maintenance Amount (as defined below), and the Fund
has consulted with the broker-dealers for the Series E Auction Rate Preferred
and has provided notice of such designation and a Basic Maintenance Report to
each rating agency then rating the Series E Auction Rate Preferred at the
request of the Fund.
The dividend payment date for any special dividend period will be the first business day after the end of the special dividend period. In addition, for special dividend periods of (x) at least 91 days but not more than one year, dividend payment dates will occur on the 91st, 181st and 271st days within such dividend period, if applicable, and on the business day following the last day of such dividend period and (y) of more than one year, dividend payment dates will occur on each March 26, June 26, September 26 and December 26 during the special dividend period.
Before the Fund designates a special dividend period: (1) at least seven business days (or two business days in the event the duration of the dividend period prior to such special dividend period is less than eight days) and not more than 30 business days before the first day of the proposed special dividend period, the Fund will issue a press release stating its intention to designate a special dividend period and inform the auction agent of the proposed special dividend period by telephonic or other means and confirm it in writing promptly thereafter and (2) the Fund must inform the auction agent of the proposed special dividend period by 3:00 p.m., New York City time on the second business day before the first day of the proposed special dividend period.
See the SAI for more information.
Restrictions on Dividends and Other Distributions for the Series D Preferred and the Series E Auction Rate Preferred
So long as any Series D Preferred or Series E Auction Rate Preferred is outstanding, the Fund may not pay any dividend or distribution (other than a dividend or distribution paid in common stock or in options, warrants or rights to subscribe for or purchase common stock) in respect of the common stock or call for redemption, redeem, purchase or otherwise acquire for consideration any common stock (except by conversion into or exchange for shares of common stock of the Fund ranking junior to the Series D
Preferred and/or Series E Auction Rate Preferred as to the payment of dividends and the distribution of assets upon liquidation), unless:
o the Fund has declared and paid (or provided to the relevant dividend paying agent) all cumulative dividends on the Fund's preferred stock, including the Series D Preferred and/or Series E Auction Rate Preferred, due on or prior to the date of such common stock dividend or distribution;
o the Fund has redeemed the full number of shares of common stock of Series D Preferred and/or Series E Auction Rate Preferred to be redeemed pursuant to any mandatory redemption provision in the Fund's Charter; and
o after paying the dividend, the Fund meets applicable asset coverage requirements described under " -- Rating Agency Guidelines" and " -- Asset Maintenance Requirements."
No full dividend will be declared or paid on the Series D Preferred or Series E Auction Rate Preferred for any dividend period, or part thereof, unless full cumulative dividends due through the most recent dividend payment dates therefor for all outstanding series of preferred stock of the Fund ranking on a parity with the Series D Preferred and Series E Auction Rate Preferred as to the payment of dividends have been or contemporaneously are declared and paid. If full cumulative dividends due have not been paid on all outstanding shares of preferred stock of the Fund ranking on a parity with the Series D Preferred and/or Series E Auction Rate Preferred as to the payment of dividends, any dividends being paid on the shares of such preferred stock (including the Series D Preferred and/or Series E Auction Rate Preferred) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of preferred stock on the relevant dividend payment date.
Redemption
Mandatory Redemption Relating to Asset Coverage Requirements. Consistent with its Charter and the 1940 Act, the Fund may, and in certain circumstances will be required to, mandatorily redeem preferred stock (including, at its discretion, the Series D Preferred or Series E Auction Rate Preferred) in the event that:
o the Fund fails to maintain the asset coverage requirements specified under the 1940 Act and such failure is not cured on or before 60 days, in the case of the Series D Preferred, or 10 business days in the case of the Series E Auction Rate Preferred following such failure; or
o the Fund fails to maintain the asset coverage requirements as calculated in accordance with the applicable rating agency guidelines as of any monthly valuation date, and such failure is not cured on or before 10 business days after such valuation date.
The redemption price for each of the Series D Preferred and Series E Auction Rate Preferred subject to mandatory redemption will be, respectively, $25 per share and $25,000 per share, in each case plus an amount equal to any accumulated but unpaid dividends (whether or not earned or declared) to the date fixed for redemption, plus, in the case of Series E Auction Rate Preferred having a dividend period of more than one year, any applicable redemption premium determined by the Board of Directors.
The number of shares of preferred stock that will be redeemed in the case of a mandatory redemption will equal the minimum number of outstanding shares of preferred stock the redemption of which, if such redemption had occurred immediately prior to the opening of business on the applicable
cure date, would have resulted in the relevant asset coverage requirement having been met or, if the required asset coverage cannot be so restored, all of the shares of preferred stock. In the event that shares of preferred stock are redeemed due to a failure to satisfy the 1940 Act asset coverage requirements, the Fund may, but is not required to, redeem a sufficient number of shares of preferred stock so that the Fund's assets exceed the asset coverage requirements under the 1940 Act after the redemption by 10% (that is, 220% asset coverage). In the event that shares of preferred stock are redeemed due to a failure to satisfy applicable rating agency guidelines, the Fund may, but is not required to, redeem a sufficient number of shares of preferred stock so that the Fund's discounted portfolio value (as determined in accordance with the applicable rating agency guidelines) after redemption exceeds the asset coverage requirements of each applicable rating agency by up to 10% (that is, 110% rating agency asset coverage). In addition, as discussed under " -- Optional Redemption" below, the Fund generally may exercise its optional redemption rights with respect to the Series E Auction Rate Preferred at any time.
If the Fund does not have funds legally available for the redemption of, or is otherwise unable to redeem, all the shares of preferred stock to be redeemed on any redemption date, the Fund will redeem on such redemption date that number of shares for which it has legally available funds, or is otherwise able to redeem, from the holders whose shares are to be redeemed ratably on the basis of the redemption price of such shares, and the remainder of those shares to be redeemed will be redeemed on the earliest practicable date on which the Fund will have funds legally available for the redemption of, or is otherwise able to redeem, such shares upon written notice of redemption.
If fewer than all shares of the Fund's outstanding preferred stock are to be redeemed, the Fund, at its discretion and subject to the limitations of the 1940 Act and Maryland law, will select one or more series of preferred stock from which shares will be redeemed and the amount of preferred stock to be redeemed from each such series. If fewer than all of the shares of a series of preferred stock are to be redeemed, such redemption will be made as among the holders of that series pro rata in accordance with the respective number of shares of such series held by each such holder on the record date for such redemption (or by such other equitable method as the Fund may determine). If fewer than all shares of the preferred stock held by any holder are to be redeemed, the notice of redemption mailed to such holder will specify the number of shares to be redeemed from such holder, which may be expressed as a percentage of shares held on the applicable record date.
Optional Redemption of the Series D Preferred. Prior to [__], the shares of Series D Preferred are not subject to optional redemption by the Fund unless such redemption is necessary, in the judgment of the Fund, to maintain the Fund's status as a regulated investment company under the Code. Commencing on [__], and thereafter, the Fund may at any time redeem shares of Series D Preferred in whole or in part for cash at a redemption price per share equal to $25 per share plus accumulated and unpaid dividends (whether or not earned or declared) to the redemption date. Such redemptions are subject to the notice requirements set forth under " -- Redemption Procedures" and the limitations of the 1940 Act and Maryland law.
Optional Redemption of the Series E Auction Rate Preferred. The Fund may, at its option, redeem the Series E Auction Rate Preferred, in whole or in part, at any time following the initial dividend period so long as the Fund has not designated a non-call period. The Fund may designate a non-call period during a dividend period of more than seven days. In the case of Series E Auction Rate Preferred having a dividend period of one year or less, the redemption price per share will equal $25,000 plus an amount equal to any accumulated but unpaid dividends thereon (whether or not earned or declared) to the redemption date, and in the case of Series E Auction Rate Preferred having a dividend period of more than one year, for the redemption price plus any redemption premium applicable during such dividend period. Such redemptions are subject to the notice requirements set forth under " -- Redemption Procedures" and the limitations of the 1940 Act and Maryland law.
Redemption Procedures. A notice of redemption with respect to an optional redemption will be given to the holders of record of preferred stock selected for redemption not less than 15 days (subject to NYSE requirements), in the case of the Series D Preferred, and not less than 7 days in the case of the Series E Auction Rate Preferred, nor, in both cases, more than 40 days prior to the date fixed for redemption. Preferred stockholders may receive shorter notice in the event of a mandatory redemption. Each notice of redemption will state (i) the redemption date, (ii) the number or percentage of shares of preferred stock to be redeemed (which may be expressed as a percentage of such shares outstanding), (iii) the CUSIP number(s) of such shares, (iv) the redemption price (specifying the amount of accumulated dividends to be included therein), (v) the place or places where such shares are to be redeemed, (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date, (vii) the provision of the Articles Supplementary under which the redemption is being made and (viii) any conditions precedent to such redemption. No defect in the notice of redemption or in the mailing thereof will affect the validity of the redemption proceedings, except as required by applicable law.
The holders of Series D Preferred or Series E Auction Rate Preferred will not have the right to redeem their shares of the Fund at their option.
Liquidation Rights
Upon a liquidation, dissolution or winding up of the affairs of the Fund (whether voluntary or involuntary), holders of Series D Preferred or Series E Auction Rate Preferred then outstanding will be entitled to receive out of the assets of the Fund available for distribution to stockholders, after satisfying claims of creditors but before any distribution or payment of assets is made to holders of the common stock or any other class of stock of the Fund ranking junior to the Series D Preferred or Series E Auction Rate Preferred as to liquidation payments, a liquidation distribution in the amount of $25 per share, in the case of the Series D Preferred, or $25,000 per share, in the case of the Series E Auction Rate Preferred, in either case plus an amount equal to all unpaid dividends accumulated to and including the date fixed for such distribution or payment (whether or not earned or declared by the Fund but excluding interest thereon), and such holders will be entitled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up. If, upon any liquidation, dissolution or winding up of the affairs of the Fund, whether voluntary or involuntary, the assets of the Fund available for distribution among the holders of all outstanding shares of preferred stock of the Fund ranking on a parity with the Series D Preferred and/or Series E Auction Rate Preferred as to payment upon liquidation will be insufficient to permit the payment in full to such holders of the Series D Preferred and/or Series E Auction Rate Preferred and other parity preferred stock of the amounts due upon liquidation with respect to such shares, then such available assets will be distributed among the holders of the Series D Preferred, the Series E Auction Rate Preferred and such other parity preferred stock ratably in proportion to the respective preferential amounts to which they are entitled. Unless and until the liquidation payments due to holders of the Series D Preferred and/or Series E Auction Rate Preferred and such other parity preferred stock have been paid in full, no dividends or distributions will be made to holders of the common stock or any other stock of the Fund ranking junior to the Series D Preferred and/or Series E Auction Rate Preferred and other parity preferred stock as to liquidation.
Voting Rights
Except as otherwise stated in this prospectus, specified in the Fund's Charter or resolved by the Board of Directors or as otherwise required by applicable law, holders of the Series D Preferred and/or Series E Auction Rate Preferred shall be entitled to one vote per share held on each matter submitted to a vote of the stockholders of the Fund and will vote together with holders of shares of common stock and of any other preferred stock then outstanding as a single class.
In connection with the election of the Fund's directors, holders of
the outstanding shares of Series D Preferred, Series E Auction Rate Preferred
and the other series of preferred stock, voting together as a single class,
will be entitled at all times to elect two of the Fund's directors, and the
remaining directors will be elected by holders of shares of common stock and
holders of the Series D Preferred, Series E Auction Rate Preferred and other
series of preferred stock, voting together as a single class. In addition, if
(i) at any time dividends on outstanding shares of the Series D Preferred,
Series E Auction Rate Preferred and/or any other preferred stock are unpaid in
an amount equal to at least two full years dividends thereon and sufficient
cash or specified securities have not been deposited with the applicable paying
agent for the payment of such accumulated dividends or (ii) at any time holders
of any other series of preferred stock are entitled to elect a majority of the
directors of the Fund under the 1940 Act or the Articles Supplementary creating
such shares, then the number of directors constituting the Board of Directors
automatically will be increased by the smallest number that, when added to the
two directors elected exclusively by the holders of the Series D Preferred,
Series E Auction Rate Preferred and other series of preferred stock as
described above, would then constitute a simple majority of the Board of
Directors as so increased by such smallest number. Such additional directors
will be elected by the holders of the Series D Preferred, Series E Auction Rate
Preferred and the other series of preferred stock, voting together as a single
class, at a special meeting of stockholders which will be called as soon as
practicable and will be held not less than 10 or more than 20 days after the
mailing date of the meeting notice. If the Fund fails to send such meeting
notice or to call such a special meeting, the meeting may be called by any
preferred stockholder on like notice. The terms of office of the persons who
are directors at the time of that election will continue. If the Fund
thereafter pays or declares and sets apart for payment in full, all dividends
payable on all outstanding shares of preferred stock for all past dividend
periods or the holders of other series of preferred stock are no longer
entitled to elect such additional directors, the additional voting rights of
the holders of the preferred stock as described above will cease, and the terms
of office of all of the additional directors elected by the holders of the
preferred stock (but not of the directors with respect to whose election the
holders of shares of common stock were entitled to vote or the two directors
the holders of shares of preferred stock have the right to elect as a separate
class in any event) will terminate.
So long as shares of Series D Preferred or Series E Auction Rate Preferred are outstanding, the Fund will not, without the affirmative vote of the holders of a majority (as defined in the 1940 Act) of the shares of preferred stock outstanding at the time (including the Series D Preferred or Series E Auction Rate Preferred, as applicable), voting separately as one class, amend, alter or repeal the provisions of the Fund's Charter, whether by merger, consolidation or otherwise, so as to materially adversely affect any of the contract rights expressly set forth in the Charter with respect to such shares of preferred stock. Also, to the extent permitted under the 1940 Act, in the event shares of more than one series of preferred stock are outstanding, the Fund will not approve any of the actions set forth in the preceding sentence which materially adversely affects the contract rights expressly set forth in the Charter with respect to such shares of a series of preferred stock (such as the Series D Preferred or Series E Auction Rate Preferred) differently than those of a holder of shares of any other series of preferred stock without the affirmative vote of the holders of at least a majority of the shares of preferred stock of each series materially adversely affected and outstanding at such time (each such materially adversely affected series voting separately as a class to the extent its rights are affected differently).
Under the Charter and applicable provisions of Maryland law, the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding shares of the preferred stock (including the Series D Preferred and/or Series E Auction Rate Preferred), voting together as a single class, will be required to approve any plan of reorganization adversely affecting the preferred stock. The approval of 66 2/3% of each class, voting separately, of the Fund's outstanding voting stock must approve the conversion of the fund from a closed-end to an open-end investment company. The approval of a majority (as that term is defined in the 1940 Act) of the Fund's outstanding preferred stock and a majority (as that term is defined in the 1940 Act) of the Fund's outstanding voting securities are required to approve any action requiring a vote of security holders under Section 13(a) of the 1940 Act (other than a conversion of the Fund from a closed-end to open-end investment company), including, among other things, changes in the Fund's investment objective or changes in the investment restrictions described as fundamental policies under "Investment Objectives and Policies" and "Investment Restrictions" in this prospectus and the SAI.
phrase) means, in accordance with Section 2(a)(42) of the 1940 Act, the vote,
at the annual or a special meeting of the stockholders of the Fund duly called
(i) of 67% or more of the shares of preferred stock present at such meeting,
if the holders of more than 50% of the outstanding shares of preferred stock
are present or represented by proxy or (ii) more than 50% of the outstanding
shares of preferred stock, whichever is less. The class vote of holders of
shares of the preferred stock described above in each case will be in addition
to a separate vote of the requisite percentage of shares of common stock,
Series D Preferred, Series E Auction Rate Preferred and any other preferred
stock, voting together as a single class, that may be necessary to authorize
the action in question.
The calculation of the elements and definitions of certain terms of the rating agency guidelines may be modified by action of the Board of Directors without further action by the stockholders if the Board of Directors determines that such modification is necessary to prevent a reduction in rating of the shares of preferred stock by Moody's and/or S&P (or any other rating agency then rating the Series D Preferred or Series E Auction Rate Preferred at the request of the Fund), as the case may be, or is in the best interests of the holders of shares of common stock and is not adverse to the holders of preferred stock in view of advice to the Fund by the relevant rating agencies that such modification would not adversely affect its then-current rating of the preferred stock.
The foregoing voting provisions will not apply to any Series D Preferred or Series E Auction Rate Preferred if, at or prior to the time when the act with respect to which such vote otherwise would be required will be effected, such shares will have been redeemed or called for redemption and sufficient cash or cash equivalents provided to the applicable paying agent to effect such redemption. The holders of Series D Preferred and/or Series E Auction Rate Preferred will have no preemptive rights or rights to cumulative voting.
Limitation on Issuance of Preferred Stock
So long as the fund has preferred stock outstanding, subject to receipt of approval from the rating agencies of each series of preferred stock outstanding, and subject to compliance with the Fund's investment objective, policies and restrictions, the Fund may issue and sell shares of one of more other series of additional preferred stock provided that the Fund will, immediately after giving effect to the issuance of such additional preferred stock and to its receipt and application of the proceeds thereof (including, without limitation, to the redemption of preferred stock to be redeemed out of such proceeds) have an "asset coverage" for all senior securities of the Fund which are stock, as defined in the 1940 Act, of at least 200% of the sum of the liquidation preference of the shares of preferred stock of the Fund then outstanding and all indebtedness of the Fund constituting senior securities and no such additional preferred stock will have any preference or priority over any other preferred stock of the Fund upon the distribution of the assets of the Fund or in respect of the payment of dividends.
The Fund does not currently intend to offer additional shares of preferred stock or senior securities representing indebtedness. However, the Fund will monitor market conditions, including, among other things, interest rates and the asset levels of the Fund, and will consider from time to time whether to offer additional preferred stock or securities representing indebtedness and may issue such additional securities if the Board of Directors concludes that such an offering would be consistent with the Fund's Charter and applicable law, and in the best interest of existing common stockholders.
Repurchase of Series D Preferred and Series E Auction Rate Preferred Stock
The Fund is a closed-end investment company and, as such, holders of the Series D Preferred or Series E Auction Rate Preferred do not and will not have the right to redeem their preferred stock of the Fund. The Fund, however, may repurchase Series D Preferred or, outside of an auction, Series E Auction Rate Preferred when it is deemed advisable by the Board of Directors in compliance with the requirements
of the 1940 Act and regulations thereunder and other applicable requirements. Unlike a redemption of the Series D Preferred and/or the Series E Auction Rate Preferred, where stockholders are subject to the redemption terms, in a repurchase offer the Fund is purchasing stock on an exchange (with respect to the Series D Preferred only) or is through private transactions or tender offers soliciting repurchases, and stockholders may choose whether or not to sell. The Fund will not repurchase Series E Auction Rate Preferred at Auction. See "The Auction of Series E Auction Rate Preferred."
This Prospectus will serve as notice that the Fund may from time to time repurchase Series D Preferred when such shares are trading below $25 per share liquidation preference.
Book-Entry
Shares of Series D Preferred will initially be held in the name of Cede & Co. as nominee for DTC. The Fund will treat Cede & Co. as the holder of record of the Series D Preferred for all purposes. In accordance with the procedures of DTC, however, purchasers of Series D Preferred will be deemed the beneficial owners of stock purchased for purposes of dividends, voting and liquidation rights. Purchasers of Series D Preferred may obtain registered certificates by contacting the Transfer Agent.
Shares of Series E Auction Rate Preferred will initially be held by the auction agent as custodian for Cede & Co., in whose name the shares of the Series E Auction Rate Preferred shall be registered. The Fund will treat Cede & Co. as the holder of record of the Series E Auction Rate Preferred for all purposes.
THE AUCTION OF SERIES E AUCTION RATE PREFERRED
Summary of Auction Procedures
The following is a brief summary of the auction procedures for the Series E Auction Rate Preferred, which are described in more detail in the SAI. These auction procedures are complicated, and there are exceptions to these procedures. Many of the terms in this section have a special meaning. Accordingly, this description does not purport to be complete and is qualified, in its entirety, by reference to the Fund's Charter, including the provisions of the Articles Supplementary establishing the Series E Auction Rate Preferred.
The auctions determine the dividend rate for the Series E Auction Rate Preferred, but each dividend rate will not be higher than the maximum rate. See "Description of the Series D Preferred and Series E Auction Rate Preferred -- Dividends on the Series E Auction Rate Preferred." If you own shares of Series E Auction Rate Preferred, you may instruct your broker-dealer to enter one of three kinds of orders in the auction with respect to your stock: sell, bid and hold.
o If you enter a sell order, you indicate that you want to sell Series E Auction Rate Preferred at $25,000 per share, no matter what the next dividend period's rate will be.
o If you enter a bid (or "hold at a rate") order, which must specify a dividend rate, you indicate that you want to sell Series E Auction Rate Preferred only if the next dividend period's rate is less than the rate you specify.
o If you enter a hold order you indicate that you want to continue to own Series E Auction Rate Preferred, no matter what the next dividend period's rate will be.
You may enter different types of orders for different portions of your Series E Auction Rate Preferred. You may also enter an order to buy additional Series E Auction Rate Preferred. All orders must be for whole shares of stock. All orders you submit are irrevocable. There is a fixed number of shares of Series E Auction Rate Preferred, and the dividend rate likely will vary from auction to auction depending on the number of bidders, the number of shares the bidders seek to buy, the rating of the Series E
Auction Rate Preferred and general economic conditions including current interest rates. If you own Series E Auction Rate Preferred and submit a bid for them higher than the then-maximum rate, your bid will be treated as a sell order. If you do not enter an order, the broker-dealer will assume that you want to continue to hold Series E Auction Rate Preferred, but if you fail to submit an order and the dividend period is longer than 28 days, the broker-dealer will treat your failure to submit a bid as a sell order.
If you do not then own Series E Auction Rate Preferred, or want to buy more shares, you may instruct a broker-dealer to enter a bid order to buy shares in an auction at $25,000 per share at or above the dividend rate you specify. If your bid for shares you do not own specifies a rate higher than the then- maximum rate, your bid will not be considered.
Broker-dealers will submit orders from existing and potential holders of Series E Auction Rate Preferred to the auction agent. Neither the Fund nor the auction agent will be responsible for a broker- dealer's failure to submit orders from existing or potential holders of Series E Auction Rate Preferred. A broker-dealer's failure to submit orders for Series E Auction Rate Preferred held by it or its customers will be treated in the same manner as a holder's failure to submit an order to the broker-dealer. A broker- dealer may submit orders to the auction agent for its own account. The Fund may not submit an order in any auction.
The auction agent after each auction for the Series E Auction Rate
Preferred will pay to each broker-dealer, from funds provided by the Fund, a
service charge equal to, in the case of any auction immediately preceding a
dividend period of less than 365 days, the product of (i) a fraction, the
numerator of which is the number of days in such dividend period and the
denominator of which is 365, times (ii) 1/4 of 1%, times (iii) $25,000, times
(iv) the aggregate number of shares of Series E Auction Rate Preferred placed
by such broker-dealer at such auction or, in the case of any auction
immediately preceding a dividend period of one year or longer, a percentage of
the purchase price of the Series E Auction Rate Preferred placed by the
broker-dealers at the auction agreed to by the Fund and the broker-dealers.
If the number of Series E Auction Rate Preferred shares subject to bid orders by potential holders with a dividend rate equal to or lower than the then-maximum rate is at least equal to the number of Series E Auction Rate Preferred shares subject to sell orders, then the dividend rate for the next dividend period will be the lowest rate submitted which, taking into account that rate and all lower rates submitted in order from existing and potential holders, would result in existing and potential holders owning all the Series E Auction Rate Preferred available for purchase in the auction.
If the number of shares of Series E Auction Rate Preferred subject to bid orders by potential holders with a dividend rate equal to or lower than the then-maximum rate is less than the number of shares of Series E Auction Rate Preferred subject to sell orders, then the auction is considered to be a failed auction, and the dividend rate will be the maximum rate. In that event, existing holders that have submitted sell orders (or are treated as having submitted sell orders) may not be able to sell any or all of the Series E Auction Rate Preferred for which they submitted sell orders.
The auction agent will not consider a bid above the then-maximum rate. The purpose of the maximum rate is to place an upper limit on dividends with respect to the Series E Auction Rate Preferred and in so doing to help protect the earnings available to pay dividends on common stock, and to serve as the dividend rate in the event of a failed auction (that is, an auction where there are more Series E Auction Rate Preferred offered for sale than there are buyers for those shares).
If broker-dealers submit or are deemed to submit hold orders for all outstanding Series E Auction Rate Preferred, the auction is considered an "all hold" auction and the dividend rate for the next dividend period will be the "all hold rate," which is 80% of the "AA" Financial Composite Commercial Paper Rate, as determined in accordance with procedures set forth in the Articles Supplementary establishing the
Series E Auction Rate Preferred. See "Description of the Series D Preferred and Series E Auction Rate Preferred - Dividends on the Series E Auction Rate Preferred - Maximum Rate."
The auction procedures include a pro rata allocation of shares of Series E Auction Rate Preferred for purchase and sale. This allocation process may result in an existing holder continuing to hold or selling, or a potential holder buying, fewer shares than the number of shares of Series E Auction Rate Preferred in its order. If this happens, broker-dealers will be required to make appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next business day (which also is a dividend payment date) after the auction date through DTC. Purchasers will pay for their Series E Auction Rate Preferred through broker-dealers in same-day funds to DTC against delivery to the broker-dealers. DTC will make payment to the sellers' broker-dealers in accordance with its normal procedures, which require broker-dealers to make payment against delivery in same-day funds. As used in this prospectus, a business day is a day on which the NYSE is open for trading, and which is not a Saturday, Sunday or any other day on which banks in New York City are authorized or obligated by law to close.
The first auction for Series E Auction Rate Preferred will be held on
[__], 2003, the business day preceding the dividend payment date for the
initial dividend period. Thereafter, except during special dividend periods,
auctions for Series E Auction Rate Preferred normally will be held every
Thursday (or the next preceding business day if Thursday is a holiday), and each
subsequent dividend period for the Series E Auction Rate Preferred normally
will begin on the following Friday.
If an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an auction date not to be a business day, then the length of the then-current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events), the applicable rate for such period will be the applicable rate for the then- current dividend period so extended and the dividend payment date for such dividend period will be the first business day immediately succeeding the end of such period.
The following is a simplified example of how a typical auction works. Assume that the Fund has 1,000 outstanding shares of Series E Auction Rate Preferred and three current holders. The three current holders and three potential holders submit orders through broker-dealers at the auction:
Current Holder A Owns 500 shares, wants to Bid order at 1.6% rate
sell all 500 shares if for all 500 shares
auction rate is less
than 1.6%
Current Holder B Owns 300 shares, Hold order - will take
wants to hold the auction rate
Current Holder C Owns 200 shares, wants to Bid order at 1.4% rate
sell all 200 shares for all 200 shares
if auction rate is less
than 1.4%
Potential Holder D Wants to buy 200 shares Places order to buy
at or above 1.5%
Potential Holder E Wants to buy 300 shares Places order to buy
at or above 1.4%
|
Potential Holder F Wants to buy 200 shares Places order to buy at or above 1.6%
The lowest dividend rate that will result in all 1,000 Series E Auction Rate Preferred shares continuing to be held is 1.5% (the offer by D). Therefore, the dividend rate will be 1.5%. Current holders B and C will continue to own their shares. Current holder A will sell its shares because A's dividend rate bid was higher than the dividend rate. Potential holder D will buy 200 shares and potential holder E will buy 300 shares because their bid rates were at or below the dividend rate. Potential holder F will not buy any shares because its bid rate was above the dividend rate.
Secondary Market Trading and Transfer of Series E Auction Rate Preferred
The underwriters are not required to make a market in the Series E Auction Rate Preferred. The broker-dealers (including the underwriters) may maintain a secondary trading market for outside of auctions, but they are not required to do so. There can be no assurance that a secondary trading market for the Series E Auction Rate Preferred will develop or, if it does develop, that it will provide owners with liquidity of investment. The Series E Auction Rate Preferred will not be registered on any stock exchange or on the NASDAQ market. Investors who purchase Series E Auction Rate Preferred in an auction for a special dividend period should note that because the dividend rate on such shares will be fixed for the length of that dividend period, the value of such shares may fluctuate in response to the changes in interest rates, and may be more or less than their original cost if sold on the open market in advance of the next auction thereof, depending on market conditions.
You may sell, transfer, or otherwise dispose of the Series E Auction Rate Preferred only in whole shares and only pursuant to a bid or sell order placed with the auction agent in accordance with the auction procedures, to the Fund or its affiliates or to or through a broker-dealer that has been selected by the Fund or to such other persons as may be permitted by the Fund. However, if you hold your Series E Auction Rate Preferred in the name of a broker-dealer, a sale or transfer of your Series E Auction Rate Preferred to that broker-dealer, or to another customer of that broker-dealer, will not be considered a sale or transfer for purposes of the foregoing if the shares remain in the name of the broker-dealer immediately after your transaction. In addition, in the case of all transfers other than through an auction, the broker- dealer (or other person, if the Fund permits) receiving the transfer must advise the auction agent of the transfer.
Further description of the auction procedures can be found in the SAI.
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
Common Stock
The Fund, which was incorporated under the laws of the State of Maryland on May 20, 1986, is authorized to issue 200,000,000 shares of common stock, par value $.001 per share. Each share has equal voting, dividend, distribution and liquidation rights. The shares of capital stock issued and outstanding are fully paid and non-assessable. Shares of the common stock are not redeemable and have no preemptive, conversion or cumulative voting rights. The Fund's shares of common stock are listed and traded on the NYSE under the symbol "GAB." The Fund is authorized, subject to maintaining required asset coverage each series of outstanding preferred stock, to repurchase its common stock on the open market when the shares are trading at a discount of 10% or more (or such other percentage as the Board of Directors may determine from time to time) from their net asset value.
Stockholders whose common stock is registered in their own name will have all distributions reinvested pursuant to the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan. For a more detailed discussion of the Fund's reinvestment plan, see "Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan" in the SAI.
Preferred Stock
Currently, 18,000,000 shares of the Fund's capital stock have been classified by the Board of Directors as preferred stock, par value $.001 per share. The terms of such preferred stock may be fixed by the Board of Directors and may materially limit and/or qualify the rights of the holders of the Fund's common stock. As of September 15, 2003, the Fund had no outstanding shares of Series A Preferred, 6,600,000 shares of Series B Preferred and 5,200 shares of Series C Auction Rate Preferred, which, along with the Series D Preferred and/or Series E Auction Rate Preferred being issued in connection with this prospectus, are senior securities of the Fund. The Series B Preferred is rated "Aaa" by Moody's and the Series C Auction Rate Preferred is rated "Aaa" by Moody's and "AAA" by Standard and Poor's and each is ranked on a parity with the Series D Preferred and Series E Auction Rate Preferred as to dividend and liquidation preference.
Dividends on the Series B Preferred accumulate at an annual rate of 7.20% of the liquidation preference of $25 per share, are cumulative from the date of original issuance thereof and are payable quarterly on March 26, June 26, September 26 and December 26 in each year. The Series B Preferred is rated "Aaa" by Moody's and the Fund is required to meet similar asset coverage requirements with respect to the Series B Preferred as are described in this prospectus for the Series D Preferred. The Fund's outstanding Series B Preferred is redeemable at the option of the Fund beginning June 20, 2006. The Series B Preferred is listed and traded on the NYSE under the symbol "GAB PrB".
Dividends on the Series C Auction Rate Preferred accumulate at the rate set at auction. The Fund is required to meet similar coverage requirements with respect to the Series C Auction Rate Preferred as are described in this prospectus for the Series E Auction Rate Preferred. The Series C Auction Rate Preferred is rated "Aaa" by Moody's and "AAA" by S&P. The liquidation preference of the Series C Auction Rate Preferred is $25,000. The Fund generally may redeem the outstanding Series C Auction Rate Preferred, in whole or in part, at any time other than during a non-call period. The Series C Auction Rate Preferred is not traded on any exchange.
The following table shows (i) the classes of capital stock authorized,
(ii) the number of shares authorized in each class, and (iii) the number of
shares outstanding in each class as of September 15, 2003.
AMOUNT
CLASS OF STOCK AMOUNT AUTHORIZED OUTSTANDING*
-------------- ----------------- ------------
Common Stock.......................... 182,000,000 136,014,878
Series A Preferred.................... 5,750,000 0
Series B Preferred.................... 10,000,000 6,600,000
Series C Auction Rate 5,200
Preferred............................. 6,000
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* Does not include the Series D Preferred or Series E Auction Rate Preferred being offered pursuant to this prospectus.
TAXATION
The following discussion is a brief summary of certain U.S. federal income tax considerations affecting the Fund and its stockholders. No attempt is made to present a detailed explanation of all U.S. federal, state, local and foreign tax concerns affecting the Fund and its stockholders (including stockholders owning large positions in the Fund), and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers to determine the tax consequences to them of investing in the Fund. The discussion reflects applicable tax laws of the United States as of the date of this prospectus, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively.
Taxation of the Fund
The Fund has elected to be treated and has qualified as, and intends to continue to qualify as, a regulated investment company under Subchapter M of the Code. Accordingly, the Fund must, among other things, (i) derive in each taxable year at least 90% of its gross income (including tax-exempt interest) from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gain from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies; and (ii) diversify its holdings so that, at the end of each quarter of each taxable year (a) at least 50% of the market value of the Fund's total assets is represented by cash and cash items, U.S. government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the market value of the Fund's total assets is invested in the securities of any issuer (other than U.S. government securities and the securities of other regulated investment companies) or of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related trades or businesses.
As a regulated investment company, the Fund generally is not subject to U.S. federal income tax on income and gains that it distributes each taxable year to stockholders, if it distributes at least 90% of the sum of the Fund's (i) investment company taxable income (as that term is defined in the Code) determined without regard to the deduction for dividends paid, and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain disallowed deductions). The Fund intends to distribute at least annually substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (ii) 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made to use the Fund's fiscal year), and (iii) certain undistributed amounts from previous years on which the Fund paid no U.S. federal income tax. While the Fund intends to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In that event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any
deduction for distributions to stockholders, and such distributions will be taxable to the stockholders as ordinary dividends to the extent of the Fund's current and accumulated earnings and profits.
Taxation of Stockholders
Distributions paid to you by the Fund from its net investment income or from an excess of net short-term capital gains over net long-term capital losses (together referred to hereinafter as "ordinary income dividends") are generally taxable to you as ordinary income to the extent of the Fund's earning and profits. Such dividends (if designated by the Fund) may, however, qualify (provided holding period and other requirements are met at the Fund and stockholder level) (i) for the dividends received deduction in the case of corporate stockholders to the extent that the Fund's income consists of qualifying dividend income from U.S. corporations and (ii) under the recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective for taxable years after December 31, 2002 through December 31, 2008) ("2003 Tax Act"), as qualified dividend income eligible for the reduced maximum rate to individuals of generally 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., generally, foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market in the United States). Distributions made to you from an excess of net long-term capital gains over net short- term capital losses ("capital gain dividends"), including capital gain dividends credited to you but retained by the Fund, are taxable to you as long-term capital gains if they have been properly designated by the Fund, regardless of the length of time you have owned Fund stock. Under the 2003 Tax Act, the tax rate on net long-term capital gain of individuals is reduced generally from 20% to 15% (5% for individuals in lower brackets) for such gain realized after May 6, 2003 and before January 1, 2009. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of your stock and, after such adjusted tax basis is reduced to zero, will constitute capital gains to you (assuming the stock is held as a capital asset). Generally, not later than 60 days after the close of its taxable year, the Fund will provide you with a written notice designating the amount of any qualified dividend income or capital gain dividends and other distributions. Over the past three years, approximately 89% of the Fund's distributions to stockholders consisted of long-term capital gain and, of the remaining 11% distributed to stockholders, 68% would have, under the current tax provisions, constituted qualified dividend income taxable at the 15% rate. Over the last one year, approximately 93% of the Fund's distributions to stockholders consisted of long-term capital gain and, of the remaining 7% distributed to stockholders, approximately 99% would have, under the current tax provisions, constituted qualified dividend income taxable at the 15% rate. We cannot assure you, however, as to what percentage of the dividends paid on the Series D Preferred or Series E Auction Rate Preferred will consist of long-term capital gains and qualified dividend income, which are currently taxed at lower rates for individuals than ordinary income.
The sale or other disposition of common stock of the Fund will generally result in capital gain or loss to you, and will be long-term capital gain or loss if the stock has been held for more than one year at the time of sale. Any loss upon the sale or exchange of Fund stock held for six months or less will be treated as long-term capital loss to the extent of any capital gain dividends received (including amounts credited as an undistributed capital gain dividend) by you. A loss realized on a sale or exchange of stock of the Fund will be disallowed if other substantially identical Fund stock is acquired within a 61-day period beginning 30 days before and ending 30 days after the date that the stock is disposed of. In such case, the basis of the stock acquired will be adjusted to reflect the disallowed loss. Present law taxes both long-term and short-term capital gains of corporations at the rates applicable to ordinary income. For non- corporate taxpayers, under the 2003 Act, short-term capital gains will currently be taxed at a maximum rate of 35% while long-term capital gains generally will be taxed at a maximum rate of 15%.
If the Fund pays you a dividend in January that was declared in the previous October, November or December to stockholders of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received by you on December 31 of the year in which the dividend was declared.
The Fund is required in certain circumstances to backup withhold on taxable dividends and certain other payments paid to non-corporate holders of the Fund's stock who do not furnish the Fund with their correct taxpayer identification number (in the case of individuals, their social security number) and
certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
Based in part on a lack of present intention on the part of the Fund to voluntarily redeem the Series E Auction Rate Preferred at any time in the future, the Fund intends to take the position that under present law the Series E Auction Rate Preferred will constitute stock, rather than debt of the Fund. It is possible, however, that the IRS could take a contrary position asserting, for example, that the Series E Auction Rate Preferred constitutes debt of the Fund. If that position were upheld, distributions on the Series E Auction Rate Preferred would be considered interest, taxable as ordinary income regardless of the taxable income of the Fund. The Fund believes this position, if asserted, would be unlikely to prevail.
The foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they directly govern the taxation of the Fund and its stockholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. A more complete discussion of the tax rules applicable to the Fund and its stockholders can be found in the Statement of Additional Information that is incorporated by reference into this prospectus. Stockholders are urged to consult their tax advisers regarding specific questions as to U.S. federal, foreign, state, local income or other taxes.
ANTI-TAKEOVER PROVISIONS OF THE CHARTER AND BY-LAWS
The Fund presently has provisions in its Charter and By-Laws which could have the effect of limiting, in each case:
o the ability of other entities or persons to acquire control of the Fund;
o the Fund's freedom to engage in certain transactions; or
o the ability of the Fund's Directors or stockholders to amend the Charter and By-Laws or effectuate changes in the Fund's management.
These provisions may be regarded as "anti-takeover" provisions. The Board of Directors of the Fund is divided into three classes, each having a term of no more than three years. Each year the term of one class of Directors will expire. Accordingly, only those Directors in one class may be changed in any one year, and it would require two years to change a majority of the Board of Directors. Such system of electing Directors may have the effect of maintaining the continuity of management and, thus, make it more difficult for the stockholders of the Fund to change the majority of Directors. See "Management of the Fund" in the SAI. A Director of the Fund may be removed only for cause and by a vote of a majority of the votes entitled to be cast for the election of Directors of the Fund.
In addition, the affirmative vote of the holders of 66 2/3% of the Fund's outstanding shares of each class (voting separately) is required to authorize the conversion of the Fund from a closed-end to an open-end investment company or generally to authorize any of the following transactions:
o the merger or consolidation of the Fund with any entity;
o the issuance of any securities of the Fund for cash to any entity or person;
o the sale, lease or exchange of all or any substantial part of the assets of the Fund to any entity or person (except assets having an aggregate fair market value of less than $1,000,000); or
o the sale, lease or exchange to the Fund, in exchange for securities of the Fund, of any assets of any entity or person (except assets having an aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through affiliates, the beneficial owner of more than 5% of the outstanding shares of any class of capital stock of the Fund. However, such vote would not be required when, under certain conditions, the Board of Directors approves the transaction. Reference is made to the Charter and By-Laws of the Fund, on file with the SEC Securities and Exchange Commission. In addition, the vote of a majority (as defined in the 1940 Act) of the holders of the Fund's outstanding voting securities, voting as a single class, is also necessary to authorize the conversion of the Fund from a closed-end to an open-end investment company.
Further, unless a higher percentage is provided for under the Charter, the affirmative vote of a majority (as defined in the 1940 Act) of the votes entitled to be cast by holders of outstanding shares of the Fund's preferred stock, voting as a separate class, will be required to approve any plan of reorganization adversely affecting such stock or any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changing the Fund's investment objectives or changing the investment restrictions described as fundamental policies under "Investment Restrictions" in the SAI.
Maryland corporations that are subject to the Securities Exchange Act of 1934 and have at least three outside directors, such as the Fund, may by board resolution elect to become subject to certain corporate governance provisions set forth in the Maryland corporate law, even if such provisions are inconsistent with the corporation's charter and by-laws. Accordingly, notwithstanding its Charter or By-Laws, under Maryland law the Fund's Board of Directors may elect by resolution to, among other things:
o require that special meetings of stockholders be called only at the request of stockholders entitled to cast at least a majority of the votes entitled to be cast at such meeting;
o reserve for the Board the right to fix the number of Fund directors;
o provide that directors are subject to removal only by the vote of the holders of two-thirds of the stock entitled to vote; and
o retain for the Board sole authority to fill vacancies created by the death, removal or resignation of a director, with any director so appointed to serve for the balance of the unexpired term rather than only until the next annual meeting of stockholders.
The Board may make any of the foregoing elections without amending the Fund's Charter or By-Laws and without stockholder approval. Though a corporation's charter or a resolution by its board may prohibit its directors from making the elections set forth above, the Fund's Board currently is not prohibited from making any such elections.
The provisions of the Charter and By-Laws and Maryland law described above could have the effect of depriving the owners of stock in the Fund of opportunities to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a principal stockholder.
The governing documents of the Fund are on file with the SEC. For the full text of these provisions see "Further Information."
The provisions of the Charter and By-Laws described above could have the effect of depriving the owners of shares in the Fund of opportunities to sell their shares at a premium over prevailing market prices, by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a principal stockholder. The Board of Directors has determined that the foregoing voting requirements, which are generally greater than the minimum requirements under Maryland law and the 1940 Act, are in the best interests of the stockholders generally.
CUSTODIAN, TRANSFER AGENT,
AUCTION AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company (the "Custodian"), located at 150 Royall Street, Canton, MA 02021, serves as the custodian of the Fund's assets pursuant to a custody agreement. Under the custody agreement, the Custodian holds the Fund's assets in compliance with the 1940 Act. For its services, the Custodian will receive a monthly fee based upon the average weekly value of the total assets of the Fund, plus certain charges for securities transactions.
EquiServe Trust Company, N.A., located at P.O. Box 43025, Providence, RI 02940-3025, serves as the Fund's dividend disbursing agent, as agent under the Fund's automatic dividend reinvestment and voluntary cash purchase plan and as transfer agent and registrar for the common stock of the Fund.
Series D Preferred. Along with the Series A Preferred and Series B Preferred, EquiServe will also serve as the Fund's transfer agent, registrar, dividend paying agent and redemption agent with respect to the Series D Preferred.
Series E Auction Rate Preferred. Along with the Series C Auction Rate Preferred, the Bank of New York, located at 5 Penn Plaza, 13th Floor, New York, NY 10001, will serve as the Fund's auction agent, transfer agent, registrar, dividend paying agent and redemption agent with respect to the Series E Auction Rate Preferred.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated [__], 2003, each underwriter named below has severally agreed to purchase, and the Fund has agreed to sell to such underwriters, the number of shares of preferred stock set forth opposite the name of such underwriter.
Number of Number of
Series D Series E Auction
Underwriter Preferred Shares Rate Preferred Shares
----------- ---------------- ---------------------
Citigroup Global Markets Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Gabelli & Company, Inc............... ---------------- -----------------
Total.............. ================ =================
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The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to the approval of certain legal matters by counsel and to certain other conditions. The underwriters are obligated to purchase all of the Series D Preferred and Series E Auction Rate Preferred, as applicable, if they purchase any such shares. In the underwriting agreement, the Fund and the Investment Adviser have agreed to indemnify the underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make for any of those liabilities.
The expenses of the offering are estimated at approximately $[__] and are payable by the Fund.
Offering of the Series D Preferred
The underwriters propose to initially offer some of the shares of Series D Preferred directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares of Series D Preferred to certain dealers at the public offering price less a concession not in excess of $[__] per Series D Preferred share. The sales load the Fund will pay of $[__] per Series D Preferred share is equal to [__ ]% of the initial offering price. The underwriters may allow, and the dealers may reallow, a discount not in excess of $[__] per Series D Preferred share on sales to other dealers. After the initial public offering, the public offering price, concession and discount may be changed. Investors must pay for any Series D Preferred Shares purchased in the initial public offering on or before [__ ], 2003.
Prior to the offering, there has been no public market for the Series D Preferred. Application has been made to list the Series D Preferred on the New York Stock Exchange. However, during an initial period that is not expected to exceed 30 days after the date of this prospectus, the Series D Preferred will not be listed on any securities exchange. During such period, the underwriters intend to make a market in the Series D Preferred; however, they have no obligation to do so. Consequently, an investment in the Series D Preferred may be illiquid during such period.
The underwriters may purchase and sell the Series D Preferred in the open market. These transactions may include short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of various bids for or purchases of shares made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the underwriters have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the shares or preventing or retarding a decline in the market price of the Series D Preferred. As a result, the price of the Series D Preferred may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Series D Preferred. The underwriters may conduct such transactions on the NYSE or in the OTC market, or otherwise. The underwriters do not make any representation that they will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Offering of Series E Auction Rate Preferred
The underwriters propose to initially offer some of the Series E Auction Rate Preferred directly to the public at the public offering prices set forth on the cover page of this prospectus and some of the Series E Auction Rate Preferred to certain dealers at the public offering price less a concession not in excess of $[__] per Series E Auction Rate Preferred share. The sales load the Fund will pay of $[_] per Series E Auction Rate Preferred share is equal to [_]% of the initial offering price. After the initial public offering, the public offering price and concession may be changed. Investors must pay for any Series E Auction Rate Preferred purchased in the initial public offering on or before [_], 2003.
Provisions of Other Services to the Fund
The Fund anticipates that the underwriters may from time to time act as brokers or, after they have ceased to be underwriters, dealers in executing the Fund's portfolio transactions and that the underwriters, or their affiliates, may act as a counterparty in connection with the interest rate transactions described under "How the Fund Manages Risk -- Interest Rate Transaction" after they have ceased to be underwriters. The underwriters are active underwriters of, and dealers in, securities and act as market makers in a number of such securities, and therefore can be expected to engage in portfolio transactions with the Fund. The Fund anticipates that the underwriters or their respective affiliates may, from time to time, act in auctions as broker-dealers and receive fees as set forth under "The Auction of the Series E Auction Rate Preferred" and in the SAI.
The underwriters have performed investment banking and advisory services for the Fund and the Investment Adviser from time to time, for which they have received customary fees and expenses. The underwriters and their affiliates may from time to time engage in transactions with and perform services for the Fund in the ordinary course of their business.
The principal business address of Citigroup Global Markets Inc. is 388 Greenwich Street, New York, New York 10013. The principal business address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is 4 World Financial Center, New York, New York 10080. The principal business address of Gabelli & Company, Inc. is One Corporate Center, Rye, New York 10580.
Gabelli & Company, Inc. is a wholly-owned subsidiary of Gabelli Securities, Inc., which is a majority-owned subsidiary of the parent company of the Investment Adviser which is, in turn, indirectly majority-owned by Mario J. Gabelli. As a result of these relationships, Mr. Gabelli, the Fund's President and Chief Investment Officer, may be deemed to be a "controlling person" of Gabelli & Company, Inc.
LEGAL MATTERS
Certain matters concerning the legality under Maryland law of the Series D Preferred and Series E Auction Rate Preferred will be passed on by Miles & Stockbridge P.C., Baltimore, Maryland. Certain legal matters will be passed on by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, special counsel to the Fund in connection with the offering of the Series D Preferred and/or Series E Auction Rate Preferred, and by Simpson Thacher & Bartlett LLP, New York, New York, counsel to the underwriters. Skadden, Arps, Slate, Meagher & Flom LLP and Simpson Thacher & Bartlett LLP will each rely as to matters of Maryland law on the opinion of Miles & Stockbridge P.C.
EXPERTS
The audited financial statements of the Fund as of December 31, 2002 have been incorporated by reference into the SAI in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The report of PricewaterhouseCoopers LLP is included in the SAI. PricewaterhouseCoopers LLP is located at 1177 Avenue of the Americas, New York, New York 10036.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy statements and other information filed by the Fund with the SEC pursuant to the informational requirements of such Acts can be inspected and copied at the public reference facilities maintained by the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC maintains a web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Fund, that file electronically with the SEC.
The Fund's common stock and Series B Preferred is listed on the NYSE, and reports, proxy statements and other information concerning the Fund and filed with the SEC by the Fund can be inspected at the offices of the NYSE, Inc., 20 Broad Street, New York, New York 10005.
This prospectus constitutes part of a Registration Statement filed by the Fund with the SEC under the Securities Act of 1933, as amended, and the 1940 Act. This prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Fund and the Series D Preferred and Series E Auction Rate Preferred offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and regulations or free of charge through the SEC's web site (http://www.sec.gov).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Fund to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those listed under "Risk Factors and Special Considerations" and elsewhere in this prospectus. As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity or achievements, and neither the Fund nor any other person assumes responsibility for the accuracy and completeness of such statements.
TABLE OF CONTENTS OF SAI
An SAI dated as of September [__], 2003, has been filed with the Securities and Exchange Commission and is incorporated by reference in this prospectus. An SAI may be obtained without charge by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or by calling the Fund toll-free at (800) GABELLI (422-3554). The Table of Contents of the SAI is as follows:
PAGE
THE FUND ..................................................... B-2
INVESTMENT OBJECTIVES AND POLICIES ........................... B-2
INVESTMENT RESTRICTIONS....................................... B-11
MANAGEMENT OF THE FUND........................................ B-13
PORTFOLIO TRANSACTIONS ....................................... B-21
REPURCHASE OF COMMON STOCK.................................... B-23
PORTFOLIO TURNOVER ........................................... B-23
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLAN................................ B-23
TAXATION ..................................................... B-25
ADDITIONAL INFORMATION CONCERNING
AUCTIONS FOR SERIES E AUCTION RATE PREFERRED .............. B-30
ADDITIONAL INFORMATION CONCERNING THE SERIES
D PREFERRED AND SERIES E AUCTION RATE PREFERRED ........... B-38
MOODY'S AND S&P GUIDELINES ................................... B-46
NET ASSET VALUE............................................... B-56
BENEFICIAL OWNERS............................................. B-57
GENERAL INFORMATION........................................... B-58
FINANCIAL STATEMENTS.......................................... B-60
GLOSSARY...................................................... A-1
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No person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this prospectus in connection with the offer contained herein, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Fund, the Investment Adviser or the underwriters. Neither the delivery of this prospectus nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the Fund since the date hereof or that the information contained herein is correct as of any time subsequent to its date. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities to which it relates. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy such securities in any circumstance in which such an offer or solicitation is unlawful.
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
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Aaa Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
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Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risk appear somewhat larger than in Aaa Securities.
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A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present that suggest a
susceptibility to impairment some time in the future.
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Baa Bonds that are rated Baa are considered as medium-grade
obligations i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present, but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
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Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
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B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small. Moody's applies numerical modifiers
(1, 2, and 3) with respect to the bonds rated Aa through B. The
modifier 1 indicates that the company ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the company ranks in
the lower end of its generic rating category.
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Caa Bonds that are rated Caa are of poor standing. These issues may be
in default or there may be present elements of danger with respect
to principal or interest.
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Ca Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
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C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
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AAA This is the highest rating assigned by Fitch to a debt obligation
and indicates an extremely strong capacity to pay interest and
repay principal.
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AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
Principal and interest payments on bonds in this category are
regarded as safe.
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A Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
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BBB This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
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Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation, and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated C1 is reserved for income bonds on which no interest is being paid and debt rated D is in payment default.
AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that Fitch does not rate a particular type of obligation as a matter of policy.
STANDARD & POOR'S RATINGS SERVICES
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AAA This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and
repay principal.
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AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
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A Principal and interest payments on bonds in this category are
regarded as safe. Debt rated A has a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
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BBB This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
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Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation, and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated C 1 is reserved for income bonds on which no interest is being paid and debt rated D is in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r" symbol is attached to derivatives, hybrids and certain other obligations that S&P believes may experience high variability in expected returns due to noncredit risks created by the terms of the obligations.
AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
$125,000,000
THE GABELLI EQUITY TRUST INC.
3,000,000 Shares, [__]% Series D Cumulative Preferred Stock
(Liquidation Preference $25 per Share)
2,000 Shares, Series E Auction Rate Cumulative Preferred Stock
(Liquidation Preference $25,000 per Share)
[Gabelli Logo]
PROSPECTUS
[__], 2003
Citigroup Merrill Lynch & Co.
Gabelli & Company, Inc.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated October 1, 2003
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Equity Trust Inc., or the Fund, is a closed-end non-diversified management investment company organized as a Maryland corporation on May 20, 1986 and registered under the 1940 Act that has a primary investment objective of long-term growth of capital and a secondary investment objective of income. The Fund commenced investment operations on August 21, 1986. The Fund's investments are selected by Gabelli Funds, LLC, its Investment Adviser. The Fund invests primarily in equity securities including common stock, preferred stock, convertible or exchangeable securities and warrants and rights to purchase such securities.
This Statement of Additional Information ("SAI") is not a prospectus, but should be read in conjunction with the prospectus for the Fund dated September 30, 2003 (the "Prospectus"). Investors should obtain and read the Prospectus prior to purchasing the Series D Preferred or the Series E Auction Rate Preferred. A copy of the Prospectus may be obtained without charge by calling the Fund at 1-800- GABELLI (1-800-422-3554) or (914) 921-5070. This SAI incorporates by reference the entire Prospectus.
Each capitalized term used but not defined in this SAI has the meaning ascribed to it, as the case may be, in the Prospectus or in the glossary of this SAI.
TABLE OF CONTENTS
Page
----
The Fund .......................................................................................... B-2
Investment Objectives and Policies................................................................. B-2
Investment Restrictions............................................................................ B-11
Management of the Fund............................................................................. B-12
Portfolio Transactions............................................................................. B-21
Repurchase of Common Stock......................................................................... B-22
Portfolio Turnover................................................................................. B-23
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan................................... B-23
Taxation .......................................................................................... B-24
Additional Information Concerning Auctions for the Series E Auction Rate Preferred................. B-29
Additional Information Concerning the Series D Preferred and Series E Auction Rate Preferred....... B-38
Moody's and S&P Guidelines......................................................................... B-45
Net Asset Value.................................................................................... B-56
Beneficial Owners.................................................................................. B-57
General Information................................................................................ B-57
Financial Statements............................................................................... B-59
Glossary .......................................................................................... A-1
Appendix A ........................................................................................
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The Prospectus and this SAI omit certain of the information contained in the registration statement filed with the SEC, Washington, D.C. The registration statement may be obtained from the SEC upon payment of the fee prescribed, or inspected at the SEC's office at no charge. This Statement of Additional Information is dated September 30, 2003.
THE FUND
The Fund was incorporated in Maryland on May 20, 1986, and is a non-diversified, closed-end management investment company registered under the 1940 Act. The Fund's investment operations commenced on August 21, 1986. The Fund's common stock is traded on the NYSE under the symbol "GAB". The Fund's Series B Preferred is traded on the NYSE under the symbol "GAB PrB".
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objective is long-term growth of capital. Income is a secondary objective. Under normal market conditions, the Fund will invest at least 80% of its total assets in equity securities. See "Investment Objectives and Policies" in the Prospectus.
Investment Practices
Special Situations. Although the Fund typically invests in the securities of companies on the basis of fundamental value, the Fund from time to time may as a non-principal investment strategy, invest in companies that are determined by the Investment Adviser to possess "special situation" characteristics. In general, a special situation company is a company whose securities are expected to increase in value solely by reason of a development particularly or uniquely applicable to the company. Developments that may create special situations include, among others, a liquidation, reorganization, recapitalization or merger, material litigation, technological breakthrough or new management or management policies. The principal risk associated with investments in special situation companies is that the anticipated development thought to create the special situation may not occur and the investment therefore may not appreciate in value or may decline in value.
Temporary Defensive Investments. The money market instruments in which the Fund may invest during temporary defensive periods are U.S. Government Obligations, commercial paper rated A-1 or higher by S&P or Prime-1 by Moody's; and certificates of deposit and bankers' acceptances issued by domestic branches of U.S. banks that are members of the Federal Deposit Insurance Corporation. For a description of such ratings, see Appendix A to the Prospectus. The Fund may also invest during temporary defensive periods to the extent permitted by applicable law in shares of money market mutual funds that invest primarily in U.S. Government Obligations and repurchase agreements in respect of those securities. Under current law, in the absence of an exemptive order, such funds will not be affiliated with the Investment Adviser. Money market mutual funds are investment companies and the investments by the Fund in those companies are subject to certain other limitations. See "Investment Restrictions." As a shareholder in a mutual fund, the Fund will bear its ratable share of the fund's expenses, including management fees, and will remain subject to payment of the fees to the Investment Adviser with respect to assets so invested.
Lower Rated Securities. The Fund may invest up to 10% of its total assets in fixed-income securities rated in the lower rating categories of recognized statistical rating agencies, such as securities
rated "CCC" or lower by S&P or "Caa" or lower by Moody's, or non-rated securities of comparable quality. These debt securities are predominantly speculative and involve major risk exposure to adverse conditions and are often referred to in the financial press as "junk bonds." See "Investment Objectives and Policies -- Certain Investment Practices -- Lower Rated Securities" in the Prospectus.
In addition to using recognized rating agencies and other sources, the Investment Adviser also performs its own analysis in seeking investments that it believes to be underrated (and thus higher- yielding) in light of the financial condition of the issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements, value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible that statistical rating agencies might not change their ratings of a particular issue or reflect subsequent events on a timely basis. Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue to hold the securities.
The market for certain lower rated and comparable unrated securities has in the past experienced a major economic recession. The recession adversely affected the value of such securities as well as the ability of certain issuers of such securities to repay principal and pay interest thereon. The market for those securities could react in a similar fashion in the event of any future economic recession.
As a result of all these factors, to the extent the Fund invests in high yield bonds, its net asset value is expected to be more volatile than the net asset value of funds that invest solely in higher rated debt securities.
Options. The Fund may, subject to guidelines of the Board of Directors, purchase or sell (i.e., write) options on securities, securities indices and foreign currencies which are listed on a national securities exchange or in the U.S. over-the-counter ("OTC") markets as a means of achieving additional return or of hedging the value of the Fund's portfolio. The Fund may write covered call options on common stocks that it owns or has an immediate right to acquire through conversion or exchange of other securities in an amount not to exceed 25% of total assets or invest up to 10% of its total assets in the purchase of put options on common stocks that the Fund owns or may acquire through the conversion or exchange of other securities that it owns.
A call option is a contract that gives the holder of the option the right to buy from the writer (seller) of the call option, in return for a premium paid, the security or currency underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise price during the option period.
A put option is the reverse of a call option, giving the holder the right, in return for a premium, to sell the underlying security or currency to the writer, at a specified price, and obligating the writer to purchase the underlying security or currency from the holder at that price. The writer of the put, who receives the premium, has the obligation to buy the underlying security or currency upon exercise, at the exercise price during the option period.
If the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option of the same series as the option previously written. There can be no assurance that a closing purchase transaction can be effected when the Fund so desires.
An exchange traded option may be closed out only on an exchange which provides a secondary market for an option of the same series. Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option.
A call option is "covered" if the Fund owns the underlying instrument covered by the call or has an absolute and immediate right to acquire that instrument without additional cash consideration upon conversion or exchange of another instrument held in its portfolio (or for additional cash consideration held in a segregated account by its custodian). A call option is also covered if the Fund holds a call on the same instrument as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written if the difference is maintained by the Fund in cash, U.S. Government Obligations or other high-grade short-term obligations in a segregated account with its custodian. A put option is "covered" if the Fund maintains cash or other high grade short-term obligations with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same instrument as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished by
purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price and price volatility of the underlying security and the time remaining until the expiration date. Gains and losses on investments in options depend, in part, on the ability of the Investment Adviser to predict correctly the effect of these factors. The use of options cannot serve as a complete hedge since the price movement of securities underlying the options will not necessarily follow the price movements of the portfolio securities subject to the hedge.
An option position may be closed out only on an exchange which provides a secondary market for an option of the same series or in a private transaction. Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In such event it might not be possible to effect closing transactions in particular options, so that the Fund would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option writer, is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or otherwise covers the position.
In addition to options on securities, the Fund may also purchase and sell call and put options on securities indices. A stock index reflects in a single number the market value of many different stocks. Relative values are assigned to the stocks included in an index and the index fluctuates with changes in the market values of the stocks. The options give the holder the right to receive a cash settlement during the term of the option based on the difference between the exercise price and the value of the index. By writing a put or call option on a securities index; the Fund is obligated, in return for the premium received, to make delivery of this amount. The Fund may offset its position in the stock index options prior to expiration by entering into a closing transaction on an exchange or it may let the option expire unexercised.
The Fund may also buy or sell call options on foreign currencies. A put option on a foreign currency gives the purchaser of the option the right to sell a foreign currency at the exercise price until the option expires. A call option on a foreign currency gives the purchaser of the option the right to purchase the currency at the exercise price until the option expires. Currency options traded on U.S. or other exchanges may be subject to position limits which may limit the ability of the Fund to reduce foreign currency risk using such options. Over-the-counter options differ from exchange-traded options in that they are two-party contracts with price and other terms negotiated between buyer and seller and generally
do not have as much market liquidity as exchange-traded options. Over-the-counter options are illiquid securities.
Use of options on securities indices entails the risk that trading in the options may be interrupted if trading in certain securities included in the index is interrupted. The Fund will not purchase these options unless the Investment Adviser is satisfied with the development, depth and liquidity of the market and the Investment Adviser believes the options can be closed out.
Price movements in the portfolio of the Fund may not correlate precisely with the movements in the level of an index and, therefore, the use of options on indexes cannot serve as a complete hedge and will depend, in part, on the ability of the Investment Adviser to predict correctly movements in the direction of the stock market generally or of a particular industry. Because options on securities indexes require settlement in cash, the Investment Adviser may be forced to liquidate portfolio securities to meet settlement obligations.
Although the Investment Adviser will attempt to take appropriate measures to minimize the risks relating to the Fund's writing of put and call options, there can be no assurance that the Fund will succeed in any option writing program it undertakes.
Futures Contracts and Options on Futures.
A "sale" of a futures contract (or a "short" futures position) means the assumption of a contractual obligation to deliver the assets underlying the contract at a specified price at a specified future time. A "purchaser" of a futures contract (or a "long" futures position) means the assumption of a contractual obligation to acquire the assets underlying the contract at a specified price at a specified future time. Certain futures contracts, including stock and bond index futures, are settled on a net cash payment basis rather than by the sale and delivery of the assets underlying the futures contracts. No consideration will be paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will be required to deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount (this amount is subject to change by the exchange or board of trade on which the contract is traded and brokers or members of such board of trade may charge a higher amount). This amount is known as "initial margin" and is in the nature of a performance bond or good faith deposit on the contract. Subsequent payments, known as "variation margins," to and from the broker will be made daily as the price of the index or security underlying the futures contracts fluctuates. At any time prior to the expiration of a futures contract, the Fund may to close the position by taking an opposite position, which will operate to terminate it existing position in the contract.
An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time prior to the expiration of
the option. Upon exercise of an option, the delivery of the futures positions by the writer of the options to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account attributable to that contract, which represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. The potential loss related to the purchase of an option on futures contracts is limited to the premium paid for the option (plus transaction costs). Because the value of the option purchased is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option does change daily and that change would be reflected in the net assets of the Fund.
Futures and options on futures entail certain risks, including but not limited to the following: no assurance that futures contracts or options on futures can be offset at favorable prices, possible reduction of the yield of the Fund due to the use of hedging, possible reduction in value of both the securities hedged and the hedging instrument, possible lack of liquidity due to daily limits on price fluctuations, imperfect correlation between the contracts and the securities being hedged, losses from investing in futures transactions that are potentially unlimited and the segregation requirements described below.
In the event the Fund sells a put option or enters into long futures contracts, under current interpretations of the 1940 Act an amount of cash, U.S. Government Obligations or other liquid securities equal to the market value of the contract must be deposited and maintained in a segregated account with the custodian of the Fund to collateralize the positions, thereby ensuring that the use of the contract is unleveraged. For short positions in futures contracts and sales of call option, the Fund may establish a segregated account (not with a futures commission merchant or broker) with cash or liquid securities that, when added to amounts deposited with a futures commission merchant or a broker as margin, equal the market value of the instruments or currency underlying the futures contract or call option or the market price at which the short positions were established).
Interest Rate Futures Contracts and Options Thereon. The Fund may purchase or sell interest rate futures contracts to take advantage of or to protect the Fund against fluctuations in interest rates affecting the value of debt securities which the Fund holds or intends to acquire. For example, if interest rates are expected to increase, the Fund might sell futures contracts on debt securities, the values of which historically have a high degree of positive correlation to the values of the Fund's portfolio securities. Such a sale would have an effect similar to selling an equivalent value of the Fund's portfolio securities. If interest rates increase, the value of the Fund's portfolio securities will decline, but the value of the futures contracts to the Fund will increase at approximately an equivalent rate thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. The Fund could accomplish similar results by selling debt securities with longer maturities and investing in debt securities with shorter maturities when interest rates are expected to increase. However, since the futures market may be more liquid than the cash market, the use of futures contracts as a risk management technique allows the Fund to maintain a defensive position without having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it is expected that interest rates may decline. The purchase of futures contracts for this purpose constitutes a hedge against increases in the price of debt securities (caused by declining interest rates) which the Fund intends to acquire. Since fluctuations in the value of appropriately selected futures contracts should approximate that of the debt securities that will be purchased, the Fund can take advantage of the anticipated rise in the cost of the debt securities without actually buying them. Subsequently, the Fund can make its intended purchase of the debt securities in the cash market and currently liquidate its futures position. To the extent the Fund
enters into futures contracts for this purpose, it will maintain in a segregated asset account with the Fund's custodian, assets sufficient to cover the Fund's obligations with respect to such futures contracts, which will consist of cash or other liquid securities from its portfolio in an amount equal to the difference between the fluctuating market value of such futures contracts and the aggregate value of the initial margin deposited by the Fund with its custodian with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. As with the purchase of futures contracts, when the Fund is not fully invested it may purchase a call option on a futures contract to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the purchase of protective put options on portfolio securities. The Fund will purchase a put option on a futures contract to hedge the Fund's portfolio against the risk of rising interest rates and consequent reduction in the value of portfolio securities.
The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities that are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of debt securities that the Fund intends to purchase. If a put or call option the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it received. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its futures positions, the Fund's losses from options on futures it has written may to some extent be reduced or increased by changes in the value of its portfolio securities.
Currency Futures and Options Thereon. Generally, foreign currency futures contracts and options thereon are similar to the interest rate futures contracts and options thereon discussed previously. By entering into currency futures and options thereon, the Fund will seek to establish the rate at which it will be entitled to exchange U.S. dollars for another currency at a future time. By selling currency futures, the Fund will seek to establish the number of dollars it will receive at delivery for a certain amount of a foreign currency. In this way, whenever the Fund anticipates a decline in the value of a foreign currency against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value of some or all of the securities held in its portfolio that are denominated in that currency. By purchasing currency futures, the Fund can establish the number of dollars it will be required to pay for a specified amount of a foreign currency in a future month. Thus, if the Fund intends to buy securities in the future and expects the U.S. dollar to decline against the relevant foreign currency during the period before the purchase is effected, the Fund can attempt to "lock in" the price in U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the price of the premium and related transaction costs it must pay for the option, to decide whether or not to buy (in the case of a call option) or to sell (in the case of a put option) a futures contract at a specified price at any time during the period before the option expires. If the Investment Adviser, in purchasing an option, has been correct in
its judgment concerning the direction in which the price of a foreign currency would move as against the U.S. dollar, the Fund may exercise the option and thereby take a futures position to hedge against the risk it had correctly anticipated or close out the option position at a gain that will offset, to some extent, currency exchange losses otherwise suffered by the Fund. If exchange rates move in a way the Fund did not anticipate, however, the Fund will have incurred the expense of the option without obtaining the expected benefit; any such movement in exchange rates may also thereby reduce rather than enhance the Fund's profits on its underlying securities transactions.
Securities Index Futures Contracts and Options Thereon. Purchases or sales of securities index futures contracts are used for hedging purposes to attempt to protect the Fund's current or intended investments from broad fluctuations in stock or bond prices. For example, the Fund may sell securities index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Fund's securities portfolio that might otherwise result. If such decline occurs, the loss in value of portfolio securities may be offset, in whole or part, by gains on the futures position. When the Fund is not fully invested in the securities market and anticipates a significant market advance, it may purchase securities index futures contracts in order to gain rapid market exposure that may, in part or entirely, offset increases in the cost of securities that the Fund intends to purchase. As such purchases are made, the corresponding positions in securities index futures contracts will be closed out. The Fund may write put and call options on securities index futures contracts for hedging purposes.
Limitations on the Purchase and Sale of Futures Contracts and Options on Futures Contracts. The Investment Adviser has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and therefore is not subject to registration under the Commodity Exchange Act. Accordingly, the Fund's investments in derivative instruments described in the Prospectus and this SAI are not limited by or subject to regulation under the Commodity Exchange Act or otherwise regulated by the Commodity Futures Trading Commission. Nevertheless, the Fund's investment restrictions place certain limitations and prohibitions on the Fund's ability to purchase or sell commodities or commodity contracts. See "Investment Restrictions." Under these restrictions, the Fund may not enter into futures contracts or options on futures contracts unless (i) the aggregate initial margins and premiums do not exceed 5% of the fair market value of the Fund's total assets and (ii) the aggregate market value of the Fund's outstanding futures contracts and the market value of the currencies and futures contracts subject to outstanding options written by the Fund, as the case may be, do not exceed 50% of the market value of the Fund's total assets. In addition, investment in future contracts and related options generally will be limited by the rating agency guidelines applicable to any of the Fund's outstanding Preferred Stock.
Forward Currency Exchange Contracts. The Fund may engage in currency transactions other than on futures exchanges to protect against future changes in the level of future currency exchange rates. The Fund will conduct such currency exchange transactions either on a spot, i.e., cash, basis at the rate then prevailing in the currency exchange market or on a forward basis, by entering into forward contracts to purchase or sell currency. A forward contract on foreign currency involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract, at a price set on the date of the contract. The risk of shifting of a forward currency contract will be substantially the same as a futures contract having similar terms. The Fund's dealing in forward currency exchange will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of forward currency with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities and accruals of interest receivable and Fund expenses. Position hedging is the forward sale of currency with respect to portfolio security positions denominated or quoted in that currency or in a currency bearing a high degree of positive correlation to the value of that currency.
The Fund may not position hedge with respect to a particular currency for an amount greater than the aggregate market value (determined at the time of making any sale of forward currency) of the securities held in its portfolio denominated or quoted in, or currently convertible into, such currency. If
the Fund enters into a position hedging transaction, the Fund's custodian or subcustodian will place cash or other liquid securities in a segregated account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of the given forward contract. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account so that the value of the account will, at all times, equal the amount of the Fund's commitment with respect to the forward contract.
At or before the maturity of a forward sale contract, the Fund may either sell a portfolio security and make delivery of the currency, or retain the security and offset its contractual obligations to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the same amount of the currency which it is obligated to delivery. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund, at the time of execution of the offsetting transaction, will incur a gain or a loss to the extent that movement has occurred in forward contract prices. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to purchase is less than the price of the currency it has agreed to sell. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. Closing out forward purchase contracts involves similar offsetting transactions.
The cost to the Fund of engaging in currency transactions varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward transactions in currency exchange are usually conducted on a principal basis, no fees or commissions are involved. The use of foreign currency contracts does not eliminate fluctuations in the underlying prices of the securities, but it does establish a rate of exchange that can be achieved in the future. In addition, although forward currency contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result if the value of the currency increases.
If a decline in any currency is generally anticipated by the Investment Adviser, the Fund may not be able to contract to sell the currency at a price above the level to which the currency is anticipated to decline.
Special Risk Considerations Relating to Futures and Options Thereon. The Fund's ability to establish and close out positions in futures contracts and options thereon will be subject to the development and maintenance of liquid markets. Although the Fund generally will purchase or sell only those futures contracts and options thereon for which there appears to be a liquid market, there is no assurance that a liquid market on an exchange will exist for any particular futures contract or option thereon at any particular time. In the event no liquid market exists for a particular futures contract or option thereon in which the Fund maintains a position, it will not be possible to effect a closing transaction in that contract or to do so at a satisfactory price and the Fund would have to either make or take delivery under the futures contract or, in the case of a written option, wait to sell the underlying securities until the option expires or is exercised or, in the case of a purchased option, exercise the option. In the case of a futures contract or an option thereon which the Fund has written and which the Fund is unable to close, the Fund would be required to maintain margin deposits on the futures contract or option thereon and to make variation margin payments until the contract is closed.
Successful use of futures contracts and options thereon and forward contracts by the Fund is subject to the ability of the Investment Adviser to predict correctly movements in the direction of interest and foreign currency rates. If the Investment Adviser's expectations are not met, the Fund will be in a
worse position than if a hedging strategy had not been pursued. For example, if the Fund has hedged against the possibility of an increase in interest rates that would adversely affect the price of securities in its portfolio and the price of such securities increases instead, the Fund will lose part or all of the benefit of the increased value of its securities because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash to meet daily variation margin requirements, it may have to sell securities to meet the requirements. These sales may be, but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time when it is disadvantageous to do so.
Additional Risks of Foreign Options, Futures Contracts, Options on Futures Contracts and Forward Contracts. Options, futures contracts and options thereon and forward contracts on securities and currencies may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occurring in the foreign markets during non- business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S. and (v) lesser trading volume.
Exchanges on which options, futures and options on futures are traded may impose limits on the positions that the Fund may take in certain circumstances.
Risks of Currency Transactions. Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulation, or exchange restrictions imposed by governments. These forms of governmental action can result in losses to the Fund if it is unable to deliver or receive currency or monies in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs.
When Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase or sale of securities, including on a "when issued" or "delayed delivery" basis, in excess of customary settlement periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring, i.e., a when, as and if issued security. When such transactions are negotiated, the price is fixed at the time of the commitment, with payment and delivery taking place in the future, generally a month or more after the date of the commitment. While it will only enter into a forward commitment with the intention of actually acquiring the security, the Fund may sell the security before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior to the settlement date. The Fund will segregate with its custodian cash or liquid high-grade debt securities in an aggregate amount at least equal to the amount of its outstanding forward commitments.
Restricted and Illiquid Securities. The Fund may invest up to a total of 10% of its net assets in securities that are subject to restrictions on resale and securities the markets for which are illiquid,
including repurchase agreements with more than seven days to maturity. Illiquid securities include securities the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Unseasoned issuers are companies (including predecessors) that have operated less than three years. The continued liquidity of such securities may not be as well assured as that of publicly traded securities, and accordingly the Board of Directors will monitor their liquidity. The Board will review pertinent factors such as trading activity, reliability of price information and trading patterns of comparable securities in determining whether to treat any such security as liquid for purposes of the foregoing 10% test. To the extent the Board treats such securities as liquid, temporary impairments to trading patterns of such securities may adversely affect the Fund's liquidity.
In accordance with pronouncements of the SEC, the Fund may invest in restricted securities that can be traded among qualified institutional buyers under Rule 144A under the Securities Act of 1933 without registration under the Securities Act and may treat them as liquid for purposes of the foregoing 10% test if such securities are found to be liquid. The Board of Directors has adopted guidelines and delegated to the Investment Adviser, subject to the supervision of the Board of Directors, the function of determining and monitoring the liquidity of particular Rule 144A securities.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute fundamental policies that cannot be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Fund along with the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding preferred stock (including the Series D Preferred and/or Series E Auction Rate Preferred), voting together as a single class. For purposes of the voting rights described in the foregoing sentence, except as otherwise required under the 1940 Act, the majority of the outstanding voting securities or preferred stock, as the case may be, means, in accordance with Section 2(a)(42) of the 1940 Act, the vote of (i) of 67% or more of the holders of such securities present at a stockholders meeting called for such vote, if the holders of more than 50% of such outstanding securities are present or represented by proxy or (ii) more than 50% of such outstanding securities, whichever is less. All percentage limitations set forth below apply immediately after a purchase or initial investment and any subsequent change in any applicable percentage resulting from market fluctuations does not require elimination of any security from the portfolio.
The Fund may not:
o Invest 25% or more of its total assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry. This restriction does not apply to investments in U.S. Government Obligations.
o Purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, if more than 10% of the market value of the total assets of the Fund would be invested in securities of other investment companies, more than 5% of the market value of the total assets of the Fund would be invested in the securities of any one investment company or the Fund would own more than 3% of any other investment company's securities;
provided, however, this restriction shall not apply to securities of any investment company organized by the Fund that are to be distributed pro rata as a dividend to its stockholders.
o Purchase or sell commodities or commodity contracts except that
the Fund may purchase or sell futures contracts and related
options thereon if immediately thereafter (i) no more than 5%
of its total assets are invested in margins and premiums and
(ii) the aggregate market value of its outstanding futures
contracts and market value of the currencies and futures
contracts subject to outstanding options written by the Fund do
not exceed 50% of the market value of its total assets. The
Fund may not purchase or sell real estate, provided that the
Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real
estate or interests therein.
o Purchase any securities on margin or make short sales, except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities.
o Make loans of money, except by the purchase of a portion of publicly distributed debt obligations in which the Fund may invest, and repurchase agreements with respect to those obligations, consistent with its investment objectives and policies. The Fund reserves the authority to make loans of its portfolio securities to financial intermediaries in an aggregate amount not exceeding 20% of its total assets. Any such loans may only be made upon approval of, and subject to any conditions imposed by, the Board of Directors of the Fund. Because these loans would at all times be fully collateralized, the risk of loss in the event of default of the borrower should be slight.
o Borrow money, except that the Fund may borrow from banks and other financial institutions on an unsecured basis, in an amount not exceeding 10% of its total assets, to finance the repurchase of its stock. The Fund also may borrow money on a secured basis from banks as a temporary measure for extraordinary or emergency purposes. Temporary borrowings may not exceed 5% of the value of the total assets of the Fund at the time the loan is made. The Fund may pledge up to 10% of the lesser of the cost or value of its total assets to secure temporary borrowings. The Fund will not borrow for investment purposes. Immediately after any borrowing, the Fund will maintain asset coverage of not less than 300% with respect to all borrowings. While the borrowing of the Fund exceeds 5% of its respective total assets, the Fund will make no further purchases of securities, although this limitation will not apply to repurchase transactions as described above.
o Issue senior securities, except to the extent permitted by applicable law.
o Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act in selling portfolio securities; provided, however, this restriction shall not apply to securities of any investment company organized by the Fund that are to be distributed pro rata as a dividend to its stockholders.
o Invest more than 10% of its total assets in illiquid securities, such as repurchase agreements with maturities in excess of seven days, or securities that at the time of purchase have legal or contractual restrictions on resale.
MANAGEMENT OF THE FUND
Directors and Officers
Overall responsibility for management and supervision of the Fund rests with its Board of Directors. The Board of Directors approves all significant agreements between the Fund and the companies that furnish the Fund with services, including agreements with the Fund's (i) Investment Adviser,(ii) custodian, (iii) transfer agent and dividend disbursing agent for its common stock and fixed rate preferred stock and (iv) auction agent, paying agent and registrar with respect to its auction rate preferred stock. See "Custodian, Transfer Agent, Auction Agent and Dividend Disbursing Agent" in the Prospectus. The day-to-day operations of the Fund are delegated to the Investment Adviser.
The names and business addresses of the Directors and principal officers of the Fund are set forth in the following table, together with their positions and their principal occupations during the past five years and, in the case of the Directors, their positions with certain other organizations and companies.
NUMBER OF
TERM OF PORTFOLIOS IN
OFFICE AND FUND PRINCIPAL
NAME, POSITION(S) LENGTH OF COMPLEX OCCUPATION(S) OTHER
ADDRESS[1] TIME OVERSEEN BY DURING PAST DIRECTORSHIPS
AND AGE SERVED[2] DIRECTOR FIVE YEARS HELD BY DIRECTOR
----------------- ------------- -------------- ---------------------------- ----------------------
INTERESTED DIRECTORS[3]:
----------------------
Mario J. Gabelli Since 1986* 23 Chairman of the Board and Director of Morgan
Director, President and Chief Executive Officer of Group Holdings, Inc.
Chief Investment Officer Gabelli Asset Management Inc. (holding company); Vice
Age: 61 and Chief Investment Officer Chairman of Lynch
of Gabelli Funds, LLC and Corporation (diversified
GAMCO Investors, Inc; Vice manufacturing company).
Chairman and Chief Executive
Officer of Lynch Interactive
Corporation (multimedia and
services)
Karl Otto Pohl Since 1992*** 33 Member of the Shareholder Director of Gabelli Asset
Director Committee of Sal. Oppenheim Management Inc. (investment
Age: 73 Jr. & Cie (private investment management); Chairman,
bank); Former President of the Incentive Capital and
Deutsche Bundesbank and Incentive Asset
Chairman of its Central Bank Management (Zurich);
Council (1980-1991) Director at Sal Oppenheim
Jr. & Cie, Zurich.
NON-INTERESTED DIRECTORS:
-------------------------
Thomas E. Bratter Since 1986* 3 Director, President and -
Director Founder, The John Dewey
Age: 63 Academy (residential college
preparatory therapeutic high
school)
Anthony J. Colavita4 Since 2001** 35 President and Attorney at Law
Director in the law firm of Anthony
Age: 66 J. Colavita, P.C.
James P. Conn4 Since 1989*** 11 Former Managing Director and Director of LaQuinta
Director Chief Investment Officer of Corp. (hotels) and First
Age: 64 Financial Security Assurance Republic Bank.
Holdings Ltd. (1992-1998)
Frank J. Fahrenkopf, Jr. Since 1998** 3 President and Chief Executive --
Director Officer of the American
Age: 63 Gaming Association since June
1995; Partner in the law firm
of Hogan & Hartson; Chairman
of International Trade Practice
Group; Co-Chairman of the
Commission on Presidential
Debates; Former Chairman of
the Republican National
Committee
B-14
|
NUMBER OF
TERM OF PORTFOLIOS IN
OFFICE AND FUND PRINCIPAL
NAME, POSITION(S) LENGTH OF COMPLEX OCCUPATION(S) OTHER
ADDRESS[1] TIME OVERSEEN BY DURING PAST DIRECTORSHIPS
AND AGE SERVED[2] DIRECTOR FIVE YEARS HELD BY DIRECTOR
----------------- ------------- -------------- ---------------------------- --------------------
Arthur V. Ferrara Since 2001** 9 Formerly, Chairman of the Director of The Guardian
Director Board and Chief Executive Life Insurance Company
Age: 72 Officer of the Guardian Life of America; Director of
Insurance Company of America The Guardian Insurance
from January 1993 to & Annuity Company,
December 1995; President, Inc., Guardian Investor
Chief Executive Officer and a Services Corporation, and
Director prior thereto 5 mutual funds within the
Guardian Fund Complex
Anthony R. Pustorino Since 1986*** 17 Certified Public Accountant; -
Director Professor Emeritus, Pace
Age: 77 University
Salvatore J. Zizza Since 1986** 11 Chairman of Hallmark Director of Hollis Eden
Director Electrical Supplies Corp.; Pharmaceuticals
Age: 57 Former Executive Vice
President of FMG Group
(OTC) a healthcare provider;
Former President and Chief
Executive Officer of the Lehigh
Group Inc., (electrical supply
wholesaler); an interior
construction company,
through 1997
OFFICERS:
--------
Bruce N. Alpert Since 1998 -- Executive Vice President and
President Chief Operating Officer of
Age: 51 Gabelli Funds, LLC since June
1988 and an officer of all
mutual funds advised by
Gabelli Funds, LLC and its
affiliates. Director and
President of Gabelli Advisors,
Inc.
Carter W. Austin Since 2000 -- Vice President at the Fund
Vice President since 2000. Vice President of
Age: 35 Gabelli Funds, LLC since 1996.
Gus Coutsouros Since -- Vice President and Chief
Vice President and 2003 Financial Officer of Gabelli
Treasurer Funds, LLC since 1998 and an
Age: 40 officer of all mutual funds
advised by Gabelli Funds and
its affiliates and Chief
Financial Officer of Gabelli
Advisers, Inc. Prior to 1998,
Treasurer of Lazard Funds.
Peter W. Latartara Since -- Vice President at the Fund
Vice President 2003 since 2003. Vice President
Age: 34 of Gabelli Funds, LLC
since 1996. Vice President
of Gabelli Asset
Management, Inc. since 2000.
James E. McKee Since 1995 -- Vice President General
Secretary Counsel and Secretary of
Age: 40 Gabelli Asset Management,
Inc. since 1999 and GAMCO
Investors, Inc. since 1993;
Secretary of all mutual funds
advised by Gabelli Advisers,
Inc.and Gabelli Funds, LLC.
_______________________
[1] Address: One Corporate Center, Rye, NY 10580, unless otherwise noted.
[2] The Fund's Board of Directors is divided into three classes, each
class having a term of three years. Each year the term of office of
one class expires and the successor or successors elected to such
class serve for a three year term. The three year term for each class
expires as follows:
B-15
|
* - Term expires at the Fund's 2004 Annual Meeting of Stockholders
and upon the election and due qualification of their successors.
** - Term expires at the Fund's 2005 Annual Meeting of Stockholders
and upon the election and due qualification of their successors.
*** - Term expires at the Fund's 2006 Annual Meeting of Stockholders
and upon the election and due qualification of their successors.
[3] "Interested person" of the Fund as defined in the 1940 Act. Messrs.
Gabelli and Pohl are each considered an "interested person" because of
their affiliation with Gabelli Funds, LLC which acts as the Fund's
investment adviser.
[4] Represents holders of shares of the Fund's Series B Preferred and
Series C Auction Rate Preferred.
The following table reflects the beneficial ownership of Directors of
the Fund in securities of the Fund and in securities of other Gabelli fund
complex registered investment companies overseen by such Director.
--------------------------------------------------------------------------------
Name of Director Dollar Range of Equity Aggregate Dollar Range of
Securities in the Fund(1) Equity Securities in all
Registered Investment
Companies Overseen by
Directors in Family of
Investment Companies (1)
--------------------------------------------------------------------------------
INTERESTED DIRECTORS
-------------------------------------------------------------------------------
Mario J. Gabelli Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Karl Otto Pohl None None
-------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
-------------------------------------------------------------------------------
Thomas E. Bratter Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Anthony J. Colavita $10,001 - $50,000 Over $100,000
-------------------------------------------------------------------------------
James P. Conn Over $100,000 Over $100,000
-------------------------------------------------------------------------------
Frank J. Fahrenkopf, Jr. None $1-$10,000
-------------------------------------------------------------------------------
Arthur V. Ferrara None Over $100,000
-------------------------------------------------------------------------------
Anthony R. Pustorino $50,001-100,000 Over $100,000
-------------------------------------------------------------------------------
Salvatore J. Zizza Over $100,000 Over $100,000
-------------------------------------------------------------------------------
|
(1) This information has been furnished by each Director as of December
31, 2002. "Beneficial Ownership" is determined in accordance with
Section 16a-1(a)(2) of the Securities Exchange Act of 1934, as amended.
The Directors serving on the Fund's Nominating Committee are Messrs.Colavita (Chairman) and Zizza. The Nominating Committee is responsible for recommending qualified candidates to the Board in the event that a position is vacated or created. The Nominating Committee would consider recommendations
by stockholders if a vacancy were to exist. Such recommendations should be forwarded to the Secretary of the Fund. The Nominating Committee did not meet during the year ended December 31, 2002. The Fund does not have a standing compensation committee.
Messrs. Pustorino (Chairman), Colavita and Zizza, who are not "interested persons" of the Fund as defined in the 1940 Act, serve on the Fund's Audit Committee. The Audit Committee is generally responsible for reviewing and evaluating issues related to the accounting and financial reporting policies and internal controls of the Fund and, as appropriate, the internal controls of certain service providers, overseeing the quality and objectivity of the Fund's financial statements and the audit thereof. The Audit Committee also acts as a liaison between the Board of Directors and the Fund's independent accountants. During the year ended December 31, 2002, the Audit Committee met twice.
The Fund and the Investment Adviser have adopted a code of ethics (the "Code of Ethics") under Rule 17j-1 of the 1940 Act. The Code of Ethics permits personnel, subject to the Code of Ethics and its restrictive provisions, to invest in securities, including securities that may be purchased or held by the Fund. The Code of Ethics can be reviewed and copied at the United States SEC's Public Reference Room in Washington, D.C. Information on the operations of the Reference Room may be obtained by calling the SEC at (202) 942-8090. The Code of Ethics is also available on the EDGAR database on the SEC's Internet Site at http://www.sec.gov. Copies of the Code of Ethics may also be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Room Section, Washington, D.C. 20549- 0102.
Remuneration of Directors and Officers
The Fund pays each Director who is not affiliated with the Investment Adviser or its affiliates a fee of $12,000 per year plus $1,500 per meeting attended in person and $500 per telephonic meeting, together with each Director's actual out-of-pocket expenses relating to attendance at such meetings.
The following table shows certain compensation information for the Directors and officers of the Fund for the fiscal year ended December 31, 2002. Mr. Austin and Mr. Latartara are employed by the Fund and their compensation is evaluated and approved by the Directors. Other officers who are employed by the Investment Adviser receive no compensation or expense reimbursement from the Fund.
Compensation Table
For the Fiscal Year Ended December 31, 2002
TOTAL
COMPENSATION
FROM THE FUND
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID
NAME OF PERSON AND FROM THE TO DIRECTORS/
POSITION FUND* OFFICERS*
Mario J. Gabelli, Chairman of the Board $0 $ 0 (23)
Karl Otto Pohl, Director $0 $ 0 (33)
Thomas E. Bratter, Director $18,000 $ 31,000 (3)
Anthony J. Colavita, Director $22,000 $152,286(35)
James P. Conn, Director $19,000 $ 53,500 (11)
Frank J. Fahrenkopf, Jr., Director $18,000 $ 31,000 (3)
Arthur V. Ferrara, Director $18,500 $ 30,000 (9)
Anthony R. Pustorino, Director $23,500 $132,286(17)
Salvatore J. Zizza, Director $21,000 $ 73,750 (11)
------------
TOTAL** $140,000
|
(2) Represents the total compensation paid to such persons during the calendar year ended December 31, 2002 by investment companies (including the Fund) or portfolios thereof from which such person receives compensation that are considered part of the same fund complex as the Fund because they have common or affiliated investment advisers. The number in parenthesis represents the number of such investment companies and portfolios.
For his service as Vice President of the Fund, Mr. Austin received compensation in 2002 of $190,000.
Indemnification of Officers and Directors; Limitations on Liability
The By-Laws of the Fund provide that the Fund, to the fullest extent permitted by law, will indemnify its current and former Directors and Officers and may indemnify its employees or agents against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices or association with the Fund. Maryland law does not permit indemnification of present or former directors, officers, employees or agents in connection with any proceeding to which they may be made a party by reason of their service to the Fund if (i) the act or omission of such person or entity, was material to the matter giving rise to the proceeding and (a) was committed in bad faith; or (b) was the result of active and deliberate dishonesty; (ii) the person or entity actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, person or entity had reasonable cause to believe that the act or omission was unlawful.
Under Maryland law, the Fund is not permitted to indemnify for an adverse judgment in a suite by or in the right of the Fund for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent or an entry of an order of probation prior to judgment creates a rebuttable presumption that the director, officer, employee or agent did not meet the requisite standard of conduct required for permitted indemnification. The termination of any proceeding by judgment, order or settlement, however, does not create such a presumption.
The By-Laws and Maryland law permits the Fund to advance reasonable expenses to current or former Directors, officers, employees and agents upon the Fund's receipt of a written affirmation by such person or entity of its good faith belief that it has met the standard of conduct necessary for indemnification by the Fund, and a written undertaking by such person or entity (or on its behalf) behalf to repay the amount paid or reimbursed by the Fund if it is ultimately determined that such person or entity did not meet the requisite standard of conduct. The By-Laws further requires that one of the following conditions must also be met to advance payment of expenses: (i) the person or entity seeking indemnification shall provide a security in the form and amount acceptable to the Fund for its undertaking; (ii) the Fund is insured against losses arising by reason of the advance; (iii) approval by a majority of a quorum of the Directors of the Fund who are neither "interested persons" as defined by Section 2(a)(19) of the 1940 Act nor parties to the proceeding, or (iv) a written opinion of independent legal counsel, based on a review of the facts readily available to the Fund at the time the advance is proposed to be made, to the effect that there is reason to believe that the person or entity seeking indemnification will ultimately be found to be entitled to indemnification.
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by final judgment as being material to the cause of action. The Charter of the Fund provides for such a limitation, except to the extent such exemption is not permitted by the 1940 Act, as amended from time to time.
Investment Advisory and Administrative Arrangements
Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to an advisory agreement with the Fund (the "Advisory Agreement"). The Investment Adviser is a New York corporation with principal offices located at One Corporate Center, Rye, New York 10580. The Investment Adviser was organized in 1999 and is the successor to Gabelli Funds, Inc., which was organized in 1980. As of June 30, 2003, the Investment Adviser acted as registered investment advisers to 19 management investment companies with aggregate net assets of $9.3 billion. The Investment Adviser, together with other affiliated investment advisers set forth below, had assets under management totaling approximately $21.9 billion, as of June 30, 2003. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing trusts and endowments and as a sub-adviser to management investment companies, having aggregate assets of $10.8 billion under management as of June 30, 2003. Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as investment adviser for The Treasurer's Fund and separate accounts having aggregate assets of $1.2 billion under management as of June 30, 2003. Gabelli Advisors, Inc., an affiliate of the Investment Adviser, acts as investment manager to the Gabelli Westwood Funds, having aggregate assets of $493 million under management as of June 30, 2003.
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset Management Inc., a New York corporation, whose Class A Common Stock is traded on the NYSE under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a "controlling person" of the Investment Adviser on the basis of his ownership of a majority of the stock of the Gabelli Group Capital Partners, Inc., which owns a majority of the capital stock of Gabelli Asset Management Inc.
Under the terms of the Advisory Agreement, the Investment Adviser manages the portfolio of the Fund in accordance with its stated investment objectives and policies, makes investment decisions for the Fund, places orders to purchase and sell securities on behalf of the Fund and manages the Fund's other business and affairs, all subject to the supervision and direction of the Fund's Board of Directors. In addition, under the Advisory Agreement, the Investment Adviser oversees the administration of all aspects of the Fund's business and affairs and provides, or arranges for others to provide, at the Investment Adviser's expense, certain enumerated services, including maintaining the Fund's books and records, preparing reports to the Fund's stockholders and supervising the calculation of the net asset value of its stock. All expenses of computing the net asset value of the Fund, including any equipment or services obtained solely for the purpose of pricing shares of stock or valuing the Fund's investment portfolio, will be an expense of the Fund under the Advisory Agreement unless the Investment Adviser voluntarily assumes responsibility for such expense.
The Advisory Agreement combines investment advisory and administrative responsibilities in one agreement. For services rendered by the Investment Adviser on behalf of the Fund under the Advisory Agreement, the Fund pays the Investment Adviser a fee computed daily and paid monthly at the annual rate of 1.00% of the average weekly net assets of the Fund. Notwithstanding the foregoing, the Investment Adviser has voluntarily agreed, with respect to each series of its outstanding preferred stock and the Series D Preferred and Series E Auction Rate Preferred, to waive the portion of its investment advisory fee attributable to an amount of assets of the Fund equal to the aggregate stated value of each such series for any calendar year in which the net asset value total return of the Fund allocable to the common stock, including distributions and the advisory fee subject to potential waiver, is less than (i) in the case of the Fund's fixed rate preferred stock, the stated annual dividend rate of such series and (ii) in the case of the Fund's auction rate preferred stock, the net cost of capital to the Fund with respect to such series for such year expressed as a percentage (including, without duplication, dividends paid by the Fund on such series and the net cost to the Fund of any associated swap or cap transaction if the Fund hedges its dividend obligations). This waiver will apply to the portion of the Fund's assets attributable to each such series of preferred stock for so long as any shares of such series remain outstanding. The Fund has voluntarily agreed to similar waivers with respect to its outstanding Series B Preferred and Series C Auction Rate Preferred.
The Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations and duties thereunder, the Investment Adviser is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund. As part of the Advisory Agreement, the Fund has agreed that the name "Gabelli" is the Investment Adviser's property, and that in the event the Investment Adviser ceases to act as an investment adviser to the Fund, the Fund will change its name to one not including "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in effect
with respect to the Fund until the second anniversary its initial approval by
the Fund's stockholders, and from year to year thereafter if approved annually
(i) by the Fund's Board of Directors or by the holders of a majority of the
Fund's outstanding voting securities and (ii) by a majority of the Directors
who are not "interested persons" (as defined in the 1940 Act) of any party to
the Advisory Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement was initially
approved by the
Board of Directors at a meeting held on July 17, 1986 and was approved most recently by the Board of Directors on May 14, 2003.
In considering whether to approve the Advisory Agreement, the Fund's non-interested Directors considered, among other factors, (i) the services provided to the Fund by the Investment Adviser and the sub-administrator, (ii) the Fund's absolute and comparative investment performance, (iii) the Fund's fee and expense data as compared to a peer group of closed-end equity funds in the same asset range as the Fund and (iv) the Investment Adviser's profitability with respect to its management of the Fund. The non-interested Directors indicated that the primary factors in their determination to approve the Advisory Agreement were the level of the Fund's advisory fee rate and actual expenses borne by the Fund, the high quality of service provided by the Investment Adviser, based in large part upon the experience of the Fund's portfolio manager, and the Fund's absolute and comparative investment performance within its peer group.
The Advisory Agreement terminates automatically on its assignment and may be terminated without penalty on 60 days written notice at the option of either party thereto or by a vote of a majority (as defined in the 1940 Act) of the Fund's outstanding stock.
For each of the years ended December 31, 2000, December 31, 2001 and December 31, 2002, the Investment Adviser was paid $13,085,773, $12,063,874, $9,835,224, and respectively, for advisory and administrative services rendered to the Fund.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the Investment Adviser is responsible for placing purchase and sale orders and the allocation of brokerage on behalf of the Fund. Transactions in equity securities are in most cases effected on U.S. stock exchanges and involve the payment of negotiated brokerage commissions. In general, there may be no stated commission in the case of securities traded in over-the-counter markets, but the prices of those securities may include undisclosed commissions or mark-ups. Principal transactions are not entered into with affiliates of the Fund. However, Gabelli & Company, Inc. may execute transactions in the over-the-counter markets on an agency basis and receive a stated commission therefrom. To the extent consistent with applicable provisions of the 1940 Act and the rules and exemptions adopted by the SEC thereunder, as well as other regulatory requirements, the Fund's Board of Directors have determined that portfolio transactions may be executed through Gabelli & Company, Inc. and its broker-dealer affiliates if, in the judgment of the Investment Adviser, the use of those broker-dealers is likely to result in price and execution at least as favorable as those of other qualified broker-dealers, and if, in particular transactions, those broker-dealers charge the Fund a rate consistent with that charged to comparable unaffiliated customers in similar transactions. The Fund has no obligations to deal with any broker or group of brokers in executing transactions in portfolio securities. In executing transactions, the Investment Adviser seeks to obtain the best price and execution for the Fund, taking into account such factors as price, size of order, difficulty of execution and operational facilities of the firm involved and the firm's risk in positioning a block of securities. While the Investment Adviser generally seeks reasonably competitive commission rates, the Fund does not necessarily pay the lowest commission available.
Subject to obtaining the best price and execution, brokers who provide supplemental research, market and statistical information to the Investment Adviser or its affiliates may receive orders for transactions by the Fund. The term "research, market and statistical information" includes advice as to the value of securities, and advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, and furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. Information so received will be in addition to and not in lieu of the services required to be performed by the Investment Adviser under the Advisory Agreement and the expenses of the Investment Adviser will not necessarily be reduced as a result of the receipt of such supplemental information. Such information may be useful to the Investment Adviser and its affiliates in providing services to clients other than the Fund, and not all such information is used by the Investment Adviser in connection with the Fund. Conversely, such information provided to the Investment Adviser and its affiliates by brokers and dealers through whom other clients of the Investment Adviser and its affiliates effect securities transactions may be useful to the Investment Adviser in providing services to the Fund.
Although investment decisions for the Fund are made independently from those of the other accounts managed by the Investment Adviser and its affiliates, investments of the kind made by the Fund may also be made by those other accounts. When the same securities are purchased for or sold by the Fund and any of such other accounts, it is the policy of the Investment Adviser and its affiliates to allocate such purchases and sales in the manner deemed fair and equitable to all of the accounts, including the Fund.
For the fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002, the Fund paid a total of $845,483, $987,659 and $487,920, respectively, in brokerage commissions, of which Gabelli & Company, Inc. and its affiliates received $586,533, $664,606, and $337,437, respectively. The amount received by Gabelli & Company, Inc. and its affiliates from the Fund in respect of brokerage commissions for the fiscal year ended December 31, 2002 represented approximately 69.16% of the aggregate dollar amount of brokerage commissions paid by the Fund for such period and approximately 35.92% of the aggregate dollar amount of transactions by the Fund for such period. The variance between the percentage of brokerage commissions received by Gabelli & Company, Inc. and the percentage of transactions executed by Gabelli & Company, Inc. reflects a series of block trades conducted at the end of the year through an unaffiliated broker-dealer at below market fixed rates to facilitate year-end capital gains by the Fund.
REPURCHASE OF COMMON STOCK
The Fund is a closed-end, non-diversified, management investment company and as such its stockholders do not, and will not, have the right to require the Fund to repurchase their stock. The Fund, however, may repurchase its common stock from time to time as and when it deems such a repurchase advisable. Such repurchases will be made when the Fund's common stock is trading at a discount of 10% or more (or such other percentage as the Board of Directors of the Fund may determine from time to time) from net asset value. Pursuant to the 1940 Act, the Fund may repurchase its common stock on a securities exchange (provided that the Fund has informed its stockholders within the preceding six months of its intention to repurchase such stock) or pursuant to tenders or as otherwise permitted in accordance with Rule 23c-1 under the 1940 Act. Under that Rule, certain conditions must be met regarding, among other things, distribution of net income for the preceding fiscal year, status of the seller, price paid, brokerage commissions, prior notice to stockholders of an intention to purchase stock and purchasing in a manner and on a basis that does not discriminate unfairly against the other stockholders through their interest in the Fund.
When the Fund repurchases its common stock for a price below net asset value, the net asset value of the common stock that remains outstanding will be enhanced, but this does not necessarily mean that the market price of the outstanding common stock will be affected, either positively or negatively.
PORTFOLIO TURNOVER
The portfolio turnover rates of the Fund for the fiscal years ending December 31, 2002, December 31, 2001 and December 31, 2000 were 27.1%, 23.9% and 32.1%, respectively. Portfolio turnover rate is calculated by dividing the lesser of an investment company's annual sales or purchases of portfolio securities by the monthly average value of securities in its portfolio during the year, excluding portfolio securities the maturities of which at the time of acquisition were one year or less. A high rate of portfolio turnover involves correspondingly greater brokerage commission expense than a lower rate, which expense must be borne by the Fund and indirectly by its stockholders, as applicable. A higher rate of portfolio turnover may also result in greater taxable gains being passed to stockholders than would otherwise be the case.
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan (the "Plan"), a stockholder whose shares of the Fund's common stock is registered in his own name will have all distributions reinvested automatically by EquiServe, which is agent under the Plan, unless the stockholder elects to receive cash. Distributions with respect to shares registered in the name of a broker- dealer or other nominee (that is, in "street name") will be reinvested by the broker or nominee in additional shares under the Plan, unless the service is not provided by the broker or nominee or the stockholder elects to receive distributions in cash. Investors who own common stock registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to investors who do not participate in the Plan will be paid by check mailed directly to the record holder by EquiServe as dividend disbursing agent.
Under the Plan, whenever the market price of the common stock is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividend or capital gains distribution, participants in the Plan are issued shares of common stock, valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then-current market price of the common stock. The valuation date is the dividend or distribution payment date or, if that date is not a NYSE trading day, the next preceding trading day. If the net asset value of the common stock at the time of valuation exceeds the market price of the common stock, participants will receive shares from the Fund, valued at market price. If the Fund should declare a dividend or capital gains distribution payable only in cash, EquiServe will buy the common stock for such Plan in the open market, on the NYSE or elsewhere, for the participants' accounts, except that EquiServe will endeavor to terminate purchases in the open market and cause the Fund to issue shares at the greater of net asset value or 95% or market value if, following the commencement of such purchases, the market value of the common stock exceeds net asset value.
Participants in the Plan have the option of making additional cash payments to EquiServe, monthly, for investment in the shares as applicable. Such payments may be made in any amount from $250 to $10,000. EquiServe will use all funds received from participants to purchase shares of the Fund
in the open market on or about the 15th of each month. EquiServe will charge each stockholder who participates $0.75, plus a pro rata share of the brokerage commissions. Brokerage charges for such purchases are expected to be less than the usual brokerage charge for such transactions. It is suggested that participants send voluntary cash payments to EquiServe in a manner that ensures that EquiServe will receive these payments approximately 10 days before the 15th of the month. A participant may without charge withdraw a voluntary cash payment by written notice, if the notice is received by EquiServe at least 48 hours before such payment is to be invested.
EquiServe maintains all stockholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by stockholders for personal and tax records. Shares in the account of each Plan participant will be held by EquiServe in noncertificated form in the name of the participant. A Plan participant may send its share certificates to EquiServe so that the shares represented by such certificates will be held by EquiServe in the participant's stockholder account under the Plan.
In the case of stockholders such as banks, brokers or nominees, which hold shares for others who are the beneficial owners, EquiServe will administer the Plan on the basis of the number of shares certified from time to time by the stockholder as representing the total amount registered in the stockholder's name and held for the account of beneficial owners who participate in the Plan.
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate its Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of such Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by EquiServe on at least 90 days written notice to the participants in such Plan. All correspondence concerning the Plan should be directed to EquiServe at P.O. Box 43025, Providence, RI 02940-3025.
TAXATION
The following discussion is a brief summary of certain United States federal income tax considerations affecting the Fund and its stockholders. No attempt is made to present a detailed explanation of all federal, state, local and foreign tax concerns affecting the Fund and its stockholders (including stockholders owning a large position in the Fund), and the discussions set forth here and in the Prospectus do not constitute tax advice. Investors are urged to consult their own tax advisers with any specific questions relating to federal, state, local and foreign taxes. The discussion reflects applicable tax laws of the United States as of the date of this SAI, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively.
Taxation of the Fund
The Fund has qualified as and intends to continue to qualify as a regulated investment company (a "RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Fund will not be subject to U.S. federal income tax on the portion of its investment company taxable income (as defined in the Code) without regard to the deduction for dividends paid and on its net capital gain (i.e., the excess of its net realized long-term capital gain over its net realized short-term capital loss), if any, which it distributes to its stockholders in each taxable year, provided that an amount equal to
at least 90% of the sum of its investment company taxable income and any net tax-exempt interest income for the taxable year is distributed to its stockholders.
Qualification as a RIC requires, among other things, that the Fund:
(i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies or other
income (including gains from options, futures or forward contracts) derived
with respect to its business of investing in stock, securities or currencies
and (ii) diversify its holdings so that, at the end of each quarter of each
taxable year, subject to certain exceptions, (a) at least 50% of the market
value of the Fund's assets is represented by cash, cash items, U.S. Government
Obligations, securities of other RICs and other securities with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its
assets is invested in the securities (other than U.S. Government Obligations
or the securities of other RICs) of any one issuer or any two or more issuers
that the Fund controls and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses.
If the Fund were unable to satisfy the 90% distribution requirement or otherwise were to fail to qualify as a RIC in any year, it would be taxed in the same manner as an ordinary corporation and distributions to the Fund's stockholders would not be deductible by the Fund in computing its taxable income. To qualify again to be taxed as a RIC in a subsequent year, the Fund would be required to distribute to preferred stockholders and common stockholders its earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Fund to the IRS. In addition, if the Fund failed to qualify as a RIC for a period greater than one taxable year, then the Fund would be required to recognize and pay tax on any net built-in gains (the excess of aggregate gains, including items of income, over aggregate losses that would have been realized if the Fund had been liquidated) or, alternatively, to elect to be subject to taxation on such built-in gains recognized for a period of ten years, in order to qualify as a RIC in a subsequent year.
Under the Code, amounts not distributed by a RIC on a timely basis in accordance with a calendar year distribution requirement are subject to a 4% excise tax. To avoid the tax, the Fund must distribute during each calendar year, an amount at least equal to the sum of (i) 98% of its ordinary income for the calendar year, (ii) 98% of its capital gain net income (both long-term and short-term) for the one year period ending on October 31 of such year (unless an election is made to use the Fund's fiscal year), and (iii) all ordinary income and capital gain net income for previous years that were not previously distributed or subject to tax under Subchapter M of the Code. A distribution will be treated as paid during the calendar year if it is paid during the calendar year or declared by the Fund in October, November or December of the year, payable to stockholders of record on a date during such a month and paid by the Fund during January of the following year. Any such distributions paid during January of the following year will be deemed to be received on December 31 of the year the distributions are declared, rather than when the distributions are received. While the Fund intends to distribute its ordinary income and capital gain net income in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's ordinary income and capital gain net income will be distributed to avoid entirely the imposition of the tax. In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
Gain or loss on the sales of securities by the Fund will be long-term capital gain or loss if the securities have been held by the Fund for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar denominated bonds and other similar debt instruments and on any non-U.S. dollar denominated futures contracts, options and forward contracts that are not section 1256 contracts (as defined below) generally will be treated as ordinary income and loss.
Investment by the Fund in certain "passive foreign investment companies" ("PFICs") could subject the Fund to federal income tax (including interest charges) on certain distributions or dispositions with respect to those investments which cannot be eliminated by making distributions to stockholders. Elections may be available to the Fund to mitigate the effect of this tax but such elections generally accelerate the recognition of income without the receipt of cash. Dividends paid by PFICs will not qualify for the reduced tax rates discussed below under "Taxation of Stockholders."
The Fund may invest in debt obligations purchased at a discount with the result that the Fund may be required to accrue income for federal income tax purposes before amounts due under the obligations are paid. The Fund may also invest in securities rated in the medium to lower rating categories of nationally recognized rating organizations, and in unrated securities ("high yield securities"). A portion of the interest payments on such high yield securities may be treated as dividends for federal income tax purposes.
As a result of investing in stock of PFICs or securities purchased at a discount or any other investment that produces income that is not matched by a corresponding cash distribution to the Fund, the Fund could be required to include, in current income, income it has not yet received. Any such income would be treated as income earned by the Fund and therefore would be subject to the distribution requirements of the Code. This might prevent the Fund from distributing 90% of its investment company taxable income as is required in order to avoid Fund-level federal income taxation on all of its income, or might prevent the Fund from distributing enough ordinary income and capital gain net income to avoid completely the imposition of the excise tax. To avoid this result, the Fund may be required to borrow money or dispose of other securities to be able to make distributions to its stockholders.
If the Fund does not meet the asset coverage requirements of the 1940 Act and the Articles Supplementary, the Fund will be required to suspend distributions to the holders of the common stock until the asset coverage is restored. Such a suspension of distributions might prevent the Fund from distributing 90% of its investment company taxable income as is required in order to avoid Fund-level federal income taxation on all of its income, or might prevent the Fund from distributing enough income and capital gain net income to avoid completely imposition of the excise tax. Upon any failure to meet the asset coverage requirements of the 1940 Act or the Articles Supplementary, the Fund may, and in certain circumstances will be required to partially redeem shares of Preferred Stock in order to restore the requisite asset coverage and avoid the adverse consequences to the Fund and its stockholders of failing to qualify as a RIC. If asset coverage were restored, the Fund would again be able to pay dividends and would generally be able to avoid Fund-level federal income taxation on the income that it distributes.
Hedging Transactions
Certain options, futures contracts and options on futures contracts are "section 1256 contracts." Any gains or losses on section 1256 contracts are generally considered 60% long-term and 40% short-term capital gains or losses ("60/40"). Also, section 1256 contracts held by the Fund at the end of each taxable year are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as 60/40 gain or loss.
Hedging transactions undertaken by the Fund may result in "straddles" for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Further, the Fund may be required to capitalize, rather than deduct currently, any interest expense on indebtedness incurred or continued to purchase or carry any positions that are part of a straddle.
The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions may be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections accelerate the recognition of gain or loss from the affected straddle positions.
Because application of the straddle rules may affect the character and timing of the Fund's gains, losses and deductions, the amount which must be distributed to stockholders, and which will be taxed to stockholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not engage in such hedging transactions.
Foreign Taxes
Since the Fund may invest in foreign securities, its income from such securities may be subject to non-U.S. taxes. The Fund will not be eligible to elect to "pass-through" to stockholders of the Fund the ability to use the foreign tax deduction or foreign tax credit for foreign taxes paid with respect to qualifying taxes.
Taxation of Stockholders
The Fund will determine either to distribute or to retain for reinvestment all or part of its net capital gain. If any such gains are retained, the Fund will be subject to a tax of 35% of such amount. In that event, the Fund expects to designate the retained amount as undistributed capital gains in a notice to its stockholders, each of whom (i) will be required to include in income for tax purposes as long-term capital gains its share of such undistributed amounts, (ii) will be entitled to credit its proportionate share of the tax paid by the Fund against its federal income tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii) will increase its basis in its shares of the Fund by an amount equal to 65% of the amount of undistributed capital gains included in such stockholder's gross income.
Distributions paid by the Fund from its net investment income or from an excess of net short-term capital gains over net-long term capital losses generally are taxable as ordinary income to the extent of the Fund's earnings and profits. Such distributions (if designated by the Fund) may, however, qualify (provided holding period and other requirements are met at the Fund and stockholder level) (i) for the dividends received deduction available to corporations, but only to the extent that the Fund's income consists of dividends received from U.S. corporations and (ii) under the recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective for taxable years after December 31, 2002 through December 31, 2008) ("2003 Tax Act"), as qualified dividend income eligible for the reduced maximum rate to individuals of generally 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., generally, foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty
with the United States, or the stock of which is readily tradable on an established securities market in the United States). Distributions of net capital gain designated as capital gain dividends, if any, are taxable to stockholders at rates applicable to long-term capital gains regardless of how long the stockholder has held shares of the Fund's stock, and are not eligible for the dividends received deduction. Under the 2003 Tax Act, the tax rate on net long-term capital gain of individuals is reduced generally from 20% to 15% (5% for individuals in lower brackets) for such gain realized after May 6, 2003 and before January 1, 2009. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gain to such holder (assuming the stock is held as a capital asset). For non-corporate taxpayers, under the 2003 Tax Act, investment company taxable income (other than qualified dividend income) will currently be taxed at a maximum rate of 35%. For corporate taxpayers, both investment company taxable income and net capital gain are taxed at a maximum rate of 35%.
Stockholders may be entitled to offset their capital gain dividends with capital losses. There are a number of statutory provisions affecting when capital losses may be offset against capital gains, and limiting the use of losses from certain investments and activities. Accordingly, stockholders with capital losses are urged to consult their tax advisers.
The price of stock purchased at any time may reflect the amount of a forthcoming distribution. Those purchasing stock just prior to a distribution will receive a distribution which will be taxable to them even though it represents in part a return of invested capital.
Upon a sale or exchange of stock, a stockholder will realize a taxable gain or loss depending upon his or her basis in the stock. Such gain or loss will be treated as long-term capital gain or loss if the stock has been held for more than one year. Any loss realized on a sale or exchange will be disallowed to the extent the stock disposed of is replaced within a 61-day period beginning 30 days before and ending 30 days after the date that the stock is disposed of. In such a case, the basis of the stock acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a stockholder on the sale of Fund stock held by the stockholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any capital gain dividends received by the stockholder (or amounts credited to the stockholder as an undistributed capital gain) with respect to such stock.
Ordinary income dividends (but not capital gain dividends) paid to stockholders who are non- resident aliens or foreign entities will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities, unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Non-resident stockholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax.
Based in part on a lack of present intention on the part of the Fund to voluntarily redeem the Series E Auction Rate Preferred at any time in the future, the Fund intends to take the position that under present law the Series E Auction Rate Preferred will constitute stock, rather than debt of the Fund. It is possible, however, that the IRS could take a contrary position asserting, for example, that the Series E Auction Rate Preferred constitute debt of the Fund. If that position were upheld, distributions on the Series E Auction Rate Preferred would be considered interest, taxable as ordinary income regardless of the taxable income of the Fund. The Fund believes this position, if asserted, would be unlikely to prevail.
The IRS has taken the position that if a RIC has two classes of stock, it may designate distributions made to each class in any year as consisting of no more than such class's proportionate share of particular types of income, such as long-term capital gain. A class's proportionate share of a particular type of income is determined according to the percentage of total dividends paid by the RIC during such year that was paid to such class. Consequently, the Fund will designate distributions made to the common stockholders and preferred stockholders as consisting of particular types of income in accordance with the classes' proportionate shares of such income. Because of this rule, the Fund is required to allocate a portion of its net capital gain, qualified dividend income and dividends qualifying for the dividends received deduction to common stockholders and preferred stockholders. The amount of net capital gain, qualified dividend income and dividends qualifying for the dividends received deduction allocable between the common stockholders and the preferred stockholders will depend upon the amount of such net capital gain, qualified dividend income and dividends qualifying for the dividends received deduction realized by the Fund, and the total dividends paid by the Fund on the Common Stock and Preferred Stock during a taxable year.
Ordinary income dividends and capital gain dividends also may be subject to state and local taxes. Stockholders are urged to consult their own tax advisers regarding specific questions about the U.S. federal (including the application of the alternative minimum tax rules), state, local or foreign tax consequences to them of investing in the Fund.
Backup Withholding
The Fund may be required to withhold federal income tax on all taxable distributions and redemption proceeds payable to non-corporate stockholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be refunded or credited against such stockholder's federal income tax liability, if any, provided that the required information is furnished to the IRS.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative action, either prospectively or retroactively. Persons considering an investment in Series D Preferred or Series E Auction Rate Preferred should consult their own tax advisers regarding the purchase, ownership and disposition of Series D Preferred or Series E Auction Rate Preferred.
ADDITIONAL INFORMATION
CONCERNING AUCTIONS FOR SERIES E AUCTION RATE PREFERRED
General
The Articles Supplementary provide that the Applicable Rate for each Dividend Period of the Series E Auction Rate Preferred will be equal to the rate per annum that the Auction Agent advises has resulted on the Business Day preceding the first day of a Dividend Period (an "Auction Date") from implementation of the Auction Procedures set forth in the Articles Supplementary, and summarized below, in which persons determine to hold or offer to sell or, based on dividend rates bid by them, offer to purchase or sell stock of such Series. Each periodic implementation of the Auction Procedures is referred
to herein as an "Auction." The following summary is qualified by reference to the Auction Procedures set forth in the Articles Supplementary.
Auction Agency Agreement. The Fund has entered into an Auction Agency Agreement (the "Auction Agency Agreement") with the Auction Agent (currently, The Bank of New York), which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for Series E Auction Rate Preferred so long as the Applicable Rate is to be based on the results of the Auction.
Broker-Dealer Agreements. Each Auction requires the participation of one or more Broker- Dealers. The Auction Agent has entered into agreements (collectively, the "Broker-Dealer Agreements") with several Broker-Dealers selected by the Fund, which provide for the participation of those Broker- Dealers in Auctions for Series E Auction Rate Preferred. See "Broker-Dealers" below.
Securities Depository. DTC will act as the Securities Depository for the Agent Members with respect to the Series E Auction Rate Preferred. One certificate for all of the shares of Series E Auction Rate Preferred will be registered in the name of Cede & Co., as nominee of the Securities Depository.
Such certificate will bear a legend to the effect that such certificate is issued subject to the provisions restricting transfers of Series E Auction Rate Preferred contained in the Articles Supplementary. The Fund will also issue stop-transfer instructions to the transfer agent for the Series E Auction Rate Preferred. Prior to the commencement of the right of Holders of the Preferred Stock to elect a majority of the Fund's Directors, as described under "Description of the Series D Preferred and Series E Auction Rate Preferred -- Voting Rights" in the Prospectus, Cede & Co. will be the Holder of all the Series E Auction Rate Preferred and owners of such shares will not be entitled to receive certificates representing their ownership interest in such shares.
DTC, a New York chartered limited purpose trust company, performs services for its participants (including Agent Members), some of whom (and/or their representatives) own DTC. DTC maintains lists of its participants and will maintain the positions (ownership interests) held by each such Agent Member in Series E Auction Rate Preferred, whether for its own account or as a nominee for another person.
Orders by Existing Holders and Potential Holders
On or prior to the Submission Deadline on each Auction Date for the Series E Auction Rate Preferred:
(i) each Beneficial Owner of Series E Auction Rate Preferred may submit to its Broker-Dealer by telephone or otherwise a:
(a) "Hold Order" - indicating the number of Outstanding shares of Series E Auction Rate Preferred, if any, that such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for such shares for the next succeeding Dividend Period of such shares;
(b) "Bid" - indicating the number of Outstanding shares of Series E Auction Rate Preferred, if any, that such Beneficial Owner offers to sell if the Applicable Rate for such Series E Auction Rate Preferred for the next succeeding Dividend Period is less than the rate per annum specified by such Beneficial Owner in such Bid; and/or
(c) "Sell Order" - indicating the number of Outstanding shares of Series E Auction Rate Preferred, if any, that such Beneficial Owner offers to sell without regard to the Applicable Rate for such Series E Auction Rate Preferred for the next succeeding Dividend Period; and
(ii) Broker-Dealers will contact customers who are Potential Beneficial Owners by telephone or otherwise to determine whether such customers desire to submit Bids, in which case they will indicate the number of shares of Series E Auction Rate Preferred that they offer to purchase if the Applicable Rate for Series E Auction Rate Preferred for the next succeeding Dividend Period is not less than the rate per annum specified in such Bids.
The communication to a Broker-Dealer of the foregoing information is herein referred to as an "Order" and collectively as "Orders." A Beneficial Owner or a Potential Beneficial Owner placing an Order with its Broker-Dealer is herein referred to as a "Bidder" and collectively as "Bidders." The submission by a Broker-Dealer of an Order to the Auction Agent is referred to herein as an "Order" and collectively as "Orders," and an Existing Holder or Potential Holder who places an Order with the Auction Agent or on whose behalf an Order is placed with the Auction Agent is referred to herein as a "Bidder" and collectively as "Bidders."
A Bid placed by a Beneficial Owner specifying a rate higher than the Applicable Rate determined in the Auction will constitute an irrevocable offer to sell the shares subject thereto. A Beneficial Owner that submits a Bid to its Broker-Dealer having a rate higher than the Maximum Rate on the Auction Date thereof will be treated as having submitted a Sell Order to its Broker-Dealer. A Sell Order will constitute an irrevocable offer to sell Series E Auction Rate Preferred subject thereto at a price per share equal to $25,000.
A Beneficial Owner that fails to submit to its Broker-Dealer prior to the Submission Deadline for the Series E Auction Rate Preferred an Order or Orders covering all the Outstanding Series E Auction Rate Preferred held by such Beneficial Owner will be deemed to have submitted a Hold Order to its Broker-Dealer covering the number of Outstanding Series E Auction Rate Preferred shares held by such Beneficial Owner and not subject to Orders submitted to its Broker-Dealer; provided, however, that if a Beneficial Owner fails to submit to its Broker-Dealer prior to the Submission Deadline for the Series E Auction Rate Preferred an Order or Orders covering all of the Outstanding Series E Auction Rate Preferred held by such Beneficial Owner for an Auction relating to a Special Dividend Period consisting of more than 28 Dividend Period days, such Beneficial Owner will be deemed to have submitted a Sell Order to its Broker-Dealer covering the number of Outstanding shares of Series E Auction Rate Preferred held by such Beneficial Owner and not subject to Orders submitted to its Broker-Dealer.
A Potential Beneficial Owner of Series E Auction Rate Preferred may submit to its Broker-Dealer Bids in which it offers to purchase Series E Auction Rate Preferred if the Applicable Rate for the next Dividend Period is not less than the rate specified in such Bid. A Bid placed by a Potential Beneficial Owner specifying a rate not higher than the Maximum Rate will constitute an irrevocable offer to purchase the number of shares of Series E Auction Rate Preferred specified in such Bid if the rate determined in the Auction is equal to or greater than the rate specified in such Bid. A Beneficial Owner of Series E Auction Rate Preferred that offers to become the Beneficial Owner of additional Series E Auction Rate Preferred is, for purposes of such offer, a Potential Beneficial Owner.
As described more fully below under "-- Orders by Existing Holders and Potential Holders," the Broker-Dealers will submit the Orders of their respective customers who are Beneficial Owners and
Potential Beneficial Owners to the Auction Agent, designating themselves (unless otherwise permitted by the Fund) as Existing Holders in respect of Series E Auction Rate Preferred subject to Orders submitted or deemed submitted to them by Beneficial Owners and as Potential Holders in respect of Series E Auction Rate Preferred subject to Orders submitted to them by Potential Beneficial Owners. However, neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's failure to comply with the foregoing. Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or a Potential Holder will be treated in the same manner as an Order placed with a Broker-Dealer by a Beneficial Owner or a Potential Beneficial Owner, as described above. Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an Order in respect of any Series E Auction Rate Preferred held by it or its customers who are Beneficial Owners will be treated in the same manner as a Beneficial Owner's failure to submit to its Broker-Dealer an Order in respect of Series E Auction Rate Preferred held by it, as described in the second preceding paragraph. For information concerning the priority given to different types of Orders placed by Existing Holders, see "-- Orders by Existing Holders and Potential Holders" below.
The Fund may not submit an Order in any Auction.
The Auction Procedures include a pro rata allocation of stock for purchase and sale, which may result in an Existing Holder continuing to hold or selling, or a Potential Holder purchasing, a number of shares of Series E Auction Rate Preferred that is fewer than the number of shares of Series E Auction Rate Preferred specified in its Order. See "-- Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below. To the extent the allocation procedures have that result, Broker- Dealers that have designated themselves as Existing Holders or Potential Holders in respect of customer Orders will be required to make appropriate pro rata allocations among their respective customers. Each purchase or sale will be made for settlement on the Business Day next succeeding the Auction Date at a price per share equal to $25,000. See "-- Notification of Results; Settlement" below.
As described above, any Bid specifying a rate higher than the Maximum Rate will (i) be treated as a Sell Order if submitted by a Beneficial Owner or an Existing Holder and (ii) not be accepted if submitted by a Potential Beneficial Owner or a Potential Holder. Accordingly, the Auction Procedures establish the Maximum Rate as a maximum rate per annum that can result from an Auction up to the Maximum Rate. See "Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
Concerning the Auction Agent
The Auction Agent is acting as agent for the Fund in connection with Auctions. In the absence of willful misconduct or gross negligence on its part, the Auction Agent will not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Auction Agency Agreement and will not be liable for any error of judgment resulting from the use of or reliance on a source of information used in good faith unless the Auction Agent will have been grossly negligent with respect to a determination, calculation or declaration thereunder.
The Auction Agent may rely upon, as evidence of the identities of the Existing Holders of Series E Auction Rate Preferred, the Auction Agent's registry of Existing Holders, the results of Auctions and notices from any Broker-Dealer (or other person, if permitted by the Fund) with respect to transfers described under "The Auction of Series E Auction Rate Preferred -- Secondary Market Trading and Transfer of Series E Auction Rate Preferred" in the Prospectus and notices from the Fund. The Auction
Agent is not required to accept any such notice for an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon written notice to the Fund on a date no earlier than 30 days after the date of delivery of such notice. If the Auction Agent should resign or for any reason its appointment is terminated during any period when the Series E Auction Rate Preferred are outstanding, the Fund will use its best efforts promptly thereafter to enter into an agreement with a successor Auction Agent containing substantially the same terms and conditions as the Auction Agency Agreement. The Fund may remove the Auction Agent, provided that prior to such removal, the Fund has entered into such an agreement in substantially the form of the Auction Agency Agreement with a successor Auction Agent.
Broker-Dealers
The Auction Agent after each Auction for Series E Auction Rate
Preferred will pay to each Broker-Dealer, from funds provided by the Fund, a
service charge equal to, in the case of any auction immediately preceding a
dividend period of less than 365 days the product of (i) a fraction, the
numerator of which is the number of days in such dividend period and the
denominator of which is 365, times (ii) 1/4 of 1%, times (iii) $25,000, times
(iv) the aggregate number of shares of Series E Auction Rate Preferred placed
by such Broker-Dealer at such auction or, in the case of any auction
immediately preceding a dividend period of one year or longer, a percentage of
the purchase price of the Series E Auction Rate Preferred placed by the
Broker-Dealers at the auction agreed to by the Fund and the Broker-Dealers.
For the purposes of the preceding sentence, Series E Auction Rate Preferred
will be placed by a Broker-Dealer if such shares were (i) the subject of Hold
Orders deemed to have been submitted to the Auction Agent by the Broker-Dealer
and were acquired by such Broker-Dealer for its customers who are Beneficial
Owners or (ii) the subject of an Order submitted by such Broker-Dealer that is
(a) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction, (b) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (c) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer may submit Orders in Auctions for its own account, unless the Fund notifies all Broker-Dealers that they may no longer do so, in which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their own accounts. If a Broker- Dealer submits an Order for its own account in any Auction, it might have an advantage over other Bidders because it would have knowledge of all Orders submitted by it in that Auction. Such Broker- Dealer, however, would not have knowledge of Orders submitted by other Broker-Dealers in that Auction.
Orders by Existing Holders and Potential Holders
Prior to 1:00 p.m., New York City time, on each Auction Date, or such other time on the Auction Date specified by the Auction Agent (i.e., the Submission Deadline), each Broker-Dealer will submit to the Auction Agent in writing all Orders obtained by it for the Auction to be conducted on such Auction Date, designating itself (unless otherwise permitted by the Fund) as the Existing Holder or Potential Holder, as the case may be, in respect of Series E Auction Rate Preferred subject to such Orders. Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, will be irrevocable.
If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent will round such rate to the next highest one-thousandth (0.001) of 1%.
If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding shares of Series E Auction Rate Preferred subject to an Auction held by such Existing Holder, such Orders will be considered valid in the following order of priority:
(i) all Hold Orders for Series E Auction Rate Preferred will be considered valid, but only up to and including in the aggregate the number of Outstanding shares of Series E Auction Rate Preferred held by such Existing Holder, and, if the number of shares of Series E Auction Rate Preferred subject to such Hold Orders exceeds the number of shares of Outstanding Series E Auction Rate Preferred held by such Existing Holder, the number of shares subject to each such Hold Order will be reduced pro rata to cover the number of Outstanding shares held by such Existing Holder;
(ii) (a) any Bid for Series E Auction Rate Preferred will be considered valid up to and including the excess of the number of Outstanding shares of Series E Auction Rate Preferred held by such Existing Holder over the number of shares of Series E Auction Rate Preferred subject to any Hold Orders referred to in clause (i) above;
(b) subject to subclause (a), if more than one Bid of an Existing Holder for Series E Auction Rate Preferred is submitted to the Auction Agent with the same rate and the number of Outstanding shares of Series E Auction Rate Preferred subject to such Bids is greater than such excess, such Bids will be considered valid up to and including the amount of such excess, and the number of shares of Series E Auction Rate Preferred subject to each Bid with the same rate will be reduced pro rata to cover the number of shares of Series E Auction Rate Preferred equal to such excess;
(c) subject to subclauses (a) and (b), if more than one Bid of an Existing Holder for Series E Auction Rate Preferred is submitted to the Auction Agent with different rates, such Bids will be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and
(d) in any such event, the number, if any, of such Outstanding shares of Series E Auction Rate Preferred subject to any portion of Bids considered not valid in whole or in part under this clause (ii) will be treated as the subject of a Bid for Series E Auction Rate Preferred by or on behalf of a Potential Holder at the rate specified therein; and
(iii) all Sell Orders for Series E Auction Rate Preferred will be considered valid up to and including the excess of the number of Outstanding shares of Series E Auction Rate Preferred held by such Existing Holder over the sum of shares subject to valid Hold Orders referred to in clause (i) above and valid Bids referred to in clause (ii) above.
If more than one Bid of a Potential Holder for Series E Auction Rate Preferred is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted will be a separate Bid with the rate and number of shares of Series E Auction Rate Preferred specified therein.
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate
Not earlier than the Submission Deadline on each Auction Date for Series E Auction Rate Preferred, the Auction Agent will assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers (each such Hold Order, Bid or Sell Order as submitted or deemed submitted by a Broker- Dealer being herein referred to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and will determine the excess of the number of Outstanding shares of Series E Auction Rate Preferred over the number of Outstanding shares of Series E Auction Rate Preferred subject to Submitted Hold Orders (such excess being herein referred to as the "Available Series E Auction Rate Preferred") and whether Sufficient Clearing Bids have been made in the Auction. "Sufficient Clearing Bids" will have been made if the number of Outstanding shares of Series E Auction Rate Preferred that are the subject of Submitted Bids of Potential Holders specifying rates not higher than the Maximum Rate equals or exceeds the number of Outstanding shares of Series E Auction Rate Preferred that are the subject of Submitted Sell Orders (including the number of shares of Series E Auction Rate Preferred subject to Bids of Existing Holders specifying rates higher than the Maximum Rate).
If Sufficient Clearing Bids for Series E Auction Rate Preferred have been made, the Auction Agent will determine the lowest rate specified in such Submitted Bids (the Winning Bid Rate for shares of such Series) which, taking into account the rates in the Submitted Bids of Existing Holders, would result in Existing Holders continuing to hold an aggregate number of Outstanding Series E Auction Rate Preferred which, when added to the number of Outstanding Series E Auction Rate Preferred shares to be purchased by Potential Holders, based on the rates in their Submitted Bids, would equal not less than the Available Series E Auction Rate Preferred. In such event, the Winning Bid Rate will be the Applicable Rate for the next Dividend Period for all shares of such Series.
If Sufficient Clearing Bids have not been made (other than because all of the Outstanding Series E Auction Rate Preferred is subject to Submitted Hold Orders), the Applicable Rate for the next Dividend Period for all Series E Auction Rate Preferred will be equal to the Maximum Rate. In such a case, Beneficial Owners that have submitted or that are deemed to have submitted Sell Orders may not be able to sell in the Auction all Series E Auction Rate Preferred subject to such Sell Orders but will continue to own Series E Auction Rate Preferred for the next Dividend Period. See "-- Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
If all of the Outstanding Series E Auction Rate Preferred is subject to Submitted Hold Orders, the Applicable Rate for all Series E Auction Rate Preferred for the next succeeding Dividend Period will be the All Hold Rate.
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares
Based on the determinations made under " - Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to the discretion of the Auction Agent to round and allocate certain shares as described below, Submitted Bids and Submitted Sell Orders will be accepted or rejected in the order of priority set forth in the Auction Procedures, with the result that Existing Holders
and Potential Holders of Series E Auction Rate Preferred will sell, continue to hold and/or purchase such shares as set forth below. Existing Holders that submitted or were deemed to have submitted Hold Orders (or on whose behalf Hold Orders were submitted or deemed to have been submitted) will continue to hold the Series E Auction Rate Preferred subject to such Hold Orders.
If Sufficient Clearing Bids for Series E Auction Rate Preferred shares have been made:
(i) Each Existing Holder that placed or on whose behalf was placed a Submitted Sell Order or Submitted Bid specifying any rate higher than the Winning Bid Rate will sell the Outstanding Series E Auction Rate Preferred subject to such Submitted Sell Order or Submitted Bid;
(ii) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate lower than the Winning Bid Rate will continue to hold the Outstanding Series E Auction Rate Preferred subject to such Submitted Bid;
(iii) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate lower than the Winning Bid Rate will purchase the number of Outstanding Series E Auction Rate Preferred shares subject to such Submitted Bid;
(iv) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to the Winning Bid Rate will continue to hold Series E Auction Rate Preferred subject to such Submitted Bid, unless the number of Outstanding Series E Auction Rate Preferred shares subject to all such Submitted Bids is greater than the number of Series E Auction Rate Preferred shares ("remaining shares") in excess of the Available Series E Auction Rate Preferred over the number of Series E Auction Rate Preferred shares accounted for in clauses (ii) and (iii) above, in which event each Existing Holder with such a Submitted Bid will continue to hold Series E Auction Rate Preferred subject to such Submitted Bid determined on a pro rata basis based on the number of Outstanding Series E Auction Rate Preferred shares subject to all such Submitted Bids of such Existing Holders; and
(v) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to the Winning Bid Rate for Series E Auction Rate Preferred will purchase any Available Series E Auction Rate Preferred not accounted for in clauses (ii) through (iv) above on a pro rata basis based on the Outstanding Series E Auction Rate Preferred shares subject to all such Submitted Bids.
If Sufficient Clearing Bids for Series E Auction Rate Preferred shares have not been made (unless this results because all Outstanding Series E Auction Rate Preferred shares are subject to Submitted Hold Orders):
(i) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to or lower than the Maximum Rate will continue to hold the Series E Auction Rate Preferred subject to such Submitted Bid;
(ii) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to or lower than the Maximum Rate will purchase the number of Series E Auction Rate Preferred shares subject to such Submitted Bid; and
(iii) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate higher than the Maximum Rate or a Submitted Sell Order will sell a number of Series E Auction Rate Preferred shares subject to such Submitted Bid or Submitted Sell Order determined on a pro rata basis based on the number of Outstanding Series E Auction Rate Preferred shares subject to all such Submitted Bids and Submitted Sell Orders.
If, as a result of the pro rata allocation described in clauses (iv) or (v) of the second preceding paragraph or clause (iii) of the next preceding paragraph, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a Series E Auction Rate Preferred share, the Auction Agent will, in such manner as, in its sole discretion, it determines, round up or down to the nearest whole share the number of Series E Auction Rate Preferred shares being sold or purchased on such Auction Date so that the number of Series E Auction Rate Preferred shares sold or purchased by each Existing Holder or Potential Holder will be whole shares of such Series. If as a result of the pro rata allocation described in clause (v) of the second preceding paragraph, any Potential Holder would be entitled or required to purchase less than a whole Series E Auction Rate Preferred share, the Auction Agent will, in such manner as, in its sole discretion, it will determine, allocate Series E Auction Rate Preferred for purchase among Potential Holders so that only whole Series E Auction Rate Preferred shares are purchased by any such Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing shares of such Series.
Notification of Results; Settlement
The Auction Agent will be required to advise each Broker-Dealer that submitted an Order of the Applicable Rate for the next Dividend Period and, if the Order was a Bid or Sell Order, whether such Bid or Sell Order was accepted or rejected, in whole or in part, by telephone by approximately 3:00 p.m., New York City time, on each Auction Date. Each Broker-Dealer that submitted an Order for the account of a customer will then be required to advise such customer of the Applicable Rate for the next Dividend Period and, if such Order was a Bid or a Sell Order, whether such Bid or Sell Order was accepted or rejected, in whole or in part, will be required to confirm purchases and sales with each customer purchasing or selling Series E Auction Rate Preferred as a result of the Auction and will be required to advise each customer purchasing or selling Series E Auction Rate Preferred as a result of the Auction to give instructions to its Agent Member of the Securities Depository to pay the purchase price against delivery of such shares or to deliver such shares against payment therefor, as appropriate. The Auction Agent will be required to record each transfer of Series E Auction Rate Preferred shares on the registry of Existing Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the Business Day after the Auction Date, the transactions described above will be executed through the Securities Depository and the accounts of the respective Agent Members at the Securities Depository will be debited and credited and shares delivered as necessary to effect the purchases and sales of Series E Auction Rate Preferred as determined in the Auction. Purchasers will make payment through their Agent Members in same-day funds to the Securities Depository against delivery through their Agent Members; the Securities Depository will make payment in accordance with its normal procedures, which now provide for payment against delivery by their Agent Members in same-day funds.
If any Existing Holder selling Series E Auction Rate Preferred in an Auction fails to deliver such shares, the Broker-Dealer of any person that was to have purchased such shares in such Auction may deliver to such person a number of whole Series E Auction Rate Preferred shares that is less than the
number of Series E Auction Rate Preferred shares that otherwise was to be purchased by such person. In such event, the number of Series E Auction Rate Preferred shares to be so delivered will be determined by the Broker-Dealer. Delivery of such lesser number of Series E Auction Rate Preferred shares will constitute good delivery.
ADDITIONAL INFORMATION CONCERNING THE
SERIES D PREFERRED AND SERIES E AUCTION RATE PREFERRED
The additional information concerning the Series D Preferred and Series E Auction Rate Preferred contained in this SAI does not purport to be complete a complete description of those Series and should be read in conjunction with the description of the Series D Preferred and Series E Auction Rate Preferred contained in the Prospectus under "Description of the Series D Preferred and Series E Auction Rate Preferred." This description is subject to and qualified in its entirety by reference to the Fund's Charter, including the provisions of the Articles Supplementary establishing, respectively, the Series D Preferred and the Series E Auction Rate Preferred. Copies of these Articles Supplementary are filed as exhibits to the registration statement of which the Prospectus and this SAI are a part and may be inspected, and a copy thereof may be obtained, as described under "Additional Information" in the Prospectus.
Dividends and Dividend Periods For the Series E Auction Rate Preferred
Holders of Series E Auction Rate Preferred will be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cumulative cash dividends on their shares, at the Applicable Rate determined as described under " -- Determination of Dividend Rate," payable as and when set forth below. Dividends so declared and payable will be paid to the extent permitted under the Code, and to the extent available and in preference to and priority over any dividend declared and payable on shares of the Fund's Common Stock.
By 12:00 noon, New York City time, on the Business Day immediately preceding each Dividend Payment Date, the Fund is required to deposit with the Paying Agent sufficient same-day funds for the payment of declared dividends. The Fund does not intend to establish any reserves for the payment of dividends.
Each dividend will be paid by the Paying Agent to the Holder, which Holder is expected to be the nominee of the Securities Depository. The Securities Depository will credit the accounts of the Agent Members of the beneficial owners in accordance with the Securities Depository's normal procedures. The Securities Depository's current procedures provide for it to distribute dividends in same-day funds to Agent Members who are in turn expected to distribute such dividends to the persons for whom they are acting as agents. The Agent Member of a beneficial owner will be responsible for holding or disbursing such payments on the applicable Dividend Payment Date to such beneficial owner in accordance with the instructions of such beneficial owner.
Holders of Series E Auction Rate Preferred will not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends. No interest will be payable in respect of any dividend payment or payments that may be in arrears. See " -- Default Period."
The amount of dividends per Outstanding Series E Auction Rate Preferred share payable (if declared) on each Dividend Payment Date of each Dividend Period of less than one year (or in respect of dividends on another date in connection with a redemption during such Dividend Period) will be
computed by multiplying the Applicable Rate (or the Default Rate) for such Dividend Period (or a portion thereof) by a fraction, the numerator of which will be the number of days in such Dividend Period (or portion thereof) such share was Outstanding and for which the Applicable Rate or the Default Rate was applicable (but in no event will the numerator exceed 360) and the denominator of which will be 360, multiplying the amount so obtained by the $25,000, and rounding the amount so obtained to the nearest cent. During any Dividend Period of one year or more, the amount of dividends per Series E Auction Rate Preferred share payable on any Dividend Payment Date (or in respect of dividends on another date in connection with a redemption during such Dividend Period) will be computed as described in the preceding sentence except that the numerator, with respect to any full twelve month period, will be 360.
Determination of Dividend Rate. The dividend rate for the initial Dividend Period (i.e., the period from and including the Date of Original Issue to and including the initial Auction Date) and the initial Auction Date for the Series E Auction Rate Preferred is set forth in the Prospectus. See "The Auction of Series E Auction Rate Preferred -- Summary of Auction Procedures" in the Prospectus. For each subsequent Dividend Period, subject to certain exceptions, the dividend rate will be the Applicable Rate that the Auction Agent advises the Fund has resulted from an Auction.
Dividend Periods after the initial Dividend Period will either be Standard Dividend Periods (generally seven days) or, subject to certain conditions and with notice to Holders, Special Dividend Periods.
A Special Dividend Period will not be effective unless Sufficient Clearing Bids exist at the Auction in respect of such Special Dividend Period (that is, in general, the number of shares subject to Bids by Potential Beneficial Owners is at least equal to the number of shares subject to Sell Orders by Existing Holders). If Sufficient Clearing Bids do not exist at any Auction in respect of a Special Dividend Period, the Dividend Period commencing on the Business Day succeeding such Auction will be the Standard Dividend Period, and the Holders of the Series E Auction Rate Preferred will be required to continue to hold such shares for such Standard Dividend Period. The designation of a Special Dividend Period is also subject to additional conditions. See " -- Notification of Dividend Period" below.
Dividends will accumulate at the Applicable Rate from the Date of Original Issue and will be payable on each Dividend Payment Date thereafter. Dividends will be paid through the Securities Depository on each Dividend Payment Date. The Applicable Rate resulting from an Auction will not be greater than the Maximum Rate. The Maximum Rate is subject to upward, but not downward, adjustment in the discretion of the Board of Directors after consultation with the Broker-Dealers, provided that immediately following any such increase the Fund would be in compliance with the Series E Auction Rate Preferred Basic Maintenance Amount.
The Maximum Rate will apply automatically following an Auction for Series E Auction Rate Preferred in which Sufficient Clearing Bids have not been made (other than because all Series E Auction Rate Preferred were subject to Submitted Hold Orders) or following the failure to hold an Auction for any reason on the Auction Date scheduled to occur (except for (i) circumstances in which the Dividend Rate is the Default Rate, as described below or (ii) in the event an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, in which case the length of the then-current dividend period will be extended by seven days, or a multiple thereof if necessary because of such unforeseen event or events, the applicable rate for such period will be the applicable rate for the then-current dividend period so extended and the dividend payment date for such dividend period will be the first business day next succeeding the end of such period). The All Hold Rate will apply automatically following an Auction in which all of the Outstanding Series E Auction Rate Preferred shares are subject (or are deemed to be subject) to Hold Orders.
Prior to each Auction, Broker-Dealers will notify Holders of the term of the next succeeding Dividend Period as soon as practicable after the Broker-Dealers have been so advised by the Fund. After each Auction, on the Auction Date, Broker-Dealers will notify Holders of the Applicable Rate for the next succeeding Dividend Period and of the Auction Date of the next succeeding Auction.
Notification of Dividend Period. The Fund will designate the duration of Dividend Periods of the Series E Auction Rate Preferred; provided, however, that no such designation is necessary for a Standard Dividend Period and that any designation of a Special Dividend Period will be effective only if (i) notice thereof has been given as provided herein, (ii) any failure to pay in the timely manner to the Auction Agent the full amount of any dividend on, or the redemption price of, the Series E Auction Rate Preferred has been cured as set forth under " -- Default Period," (iii) Sufficient Clearing Orders existed in an Auction held on the Auction Date immediately preceding the first day of such proposed Special Dividend Period, (iv) if the Fund mailed a notice of redemption with respect to any shares, the Redemption Price with respect to such shares has been deposited with the Paying Agent, and (v) the Fund has confirmed that, as of the Auction Date next preceding the first day of such Special Dividend Period, it has Eligible Assets with an aggregate Discounted Value at least equal to the Series E Auction Rate Preferred Basic Maintenance Amount and has consulted with the Broker-Dealers and has provided notice and a Series E Auction Rate Preferred Basic Maintenance Report to each Rating Agency which is then rating the Series E Auction Rate Preferred and so requires.
If the Fund proposes to designate any Special Dividend Period, not fewer than seven Business Days (or two Business Days in the event the duration of the Special Dividend Period is fewer than eight days) nor more than 30 Business Days prior to the first day of such Special Dividend Period, notice will be made by press release and communicated by the Fund by telephonic or other means to the Auction Agent and confirmed in writing promptly thereafter. Each such notice will state (x) that the Fund proposes to exercise its option to designate a succeeding Special Dividend Period, specifying the first and last days thereof and (y) that the Fund will, by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such Special Dividend Period, notify the Auction Agent, who will promptly notify the Broker-Dealers, of either its determination, subject to certain conditions, to proceed with such Special Dividend Period, in which case the Fund may specify the terms of any Specific Redemption Provisions, or its determination not to proceed with such Special Dividend Period, in which case the succeeding Dividend Period will be a Standard Dividend Period.
No later than 3:00 p.m., New York City time, on the second Business Day next preceding the first day of any proposed Special Dividend Period, the Fund will deliver to the Auction Agent, who will promptly deliver to the Broker-Dealers and Existing Holders, either:
(a) a notice stating (1) that the Fund has determined to designate the immediately succeeding Dividend Period as a Special Dividend Period, specifying the first and last days thereof and (2) the terms of the Specific Redemption Provisions, if any; or
(b) a notice stating that the Fund has determined not to exercise its option to designate a Special Dividend Period.
If the Fund fails to deliver either such notice with respect to any designation of any proposed Special Dividend Period to the Auction Agent or is unable to make the confirmation described above by 3:00 p.m.,
New York City time, on the second Business Day next preceding the first day of such proposed Special Dividend Period, the Fund will be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in clause (b) above, thereby resulting in a Standard Dividend Period.
Default Period. A "Default Period" with respect to the Outstanding Series E Auction Rate Preferred will commence on any date upon which the Fund fails to deposit irrevocably in trust in same- day funds with the Paying Agent by 12:00 noon, New York City time, on the Business Day immediately preceding the relevant Dividend Payment Date or Redemption Date, as the case may be, (i) the full amount of any declared dividend on the Series E Auction Rate Preferred payable on such Dividend Payment Date (a "Dividend Default") or (ii) the full amount of any redemption price (the "Redemption Price") payable on the Series E Auction Rate Preferred being redeemed on such Redemption Date (a "Redemption Default" and, together with a Dividend Default, a "Default").
A Default Period with respect to a Dividend Default or a Redemption Default will end by 12:00 noon, New York City time, on the Business Day on which all unpaid dividends and any unpaid Redemption Price will have been deposited irrevocably in trust in same-day funds with the Paying Agent.
In the case of a Dividend Default, no Auction will be held during a Default Period applicable to the Series E Auction Rate Preferred, and the dividend rate for each Dividend Period commencing during a Default Period will be equal to the Default Rate; provided, however, that if a Default Period is deemed not to have occurred because the Default has been cured, then the dividend rate for the period shall be the Applicable Rate set at the auction for such period.
Each subsequent Dividend Period commencing after the beginning of a Default Period will be a Standard Dividend Period; provided, however, that the commencement of a Default Period will not by itself cause the commencement of a new Dividend Period. No Auction will be held during a Default Period applicable to such Series; provided, however, that if a Default Period shall end prior to the end of Standard Dividend Period that had commenced during the Default Period, an Auction shall be held on the last day of such Standard Dividend Period.
In the event the Fund fully pays all default amounts due during a Dividend Period, the dividend rate for the remainder of that Dividend Period will be, as the case may be, the Applicable Rate (for the first Dividend Period following a Dividend Default) or the Maximum Rate (for any subsequent Dividend Period for which such Default is continuing).
No Default Period with respect to a Dividend Default or Redemption Default will be deemed to commence if the amount of any dividend or any Redemption Price due (if such Default is not solely due to the willful failure of the Fund) is deposited irrevocably in trust, in same-day funds with the Paying Agent by 12:00 noon, New York City time, within three Business Days after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount of such non-payment based on the actual number of days comprising such period divided by 360. The Default Rate will be equal to the Reference Rate multiplied by three.
Restrictions on Dividends, Redemption and Other Payments
Under the 1940 Act, the Fund may not declare any dividend (except a dividend payable in stock of the issuer) or other distributions upon any of its outstanding Common Stock, or purchase any such Common Stock, if at the time of the declaration, distribution or purchase, as applicable (and after giving effect thereto), asset coverage with respect to the Fund's outstanding Preferred Stock, including the Series D Preferred or Series E Auction Rate Preferred, would be less than 200%.
For so long as the Series D Preferred or Series E Auction Rate Preferred is Outstanding, except as otherwise provided in the Articles Supplementary, the Fund will not pay any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, shares of Common Stock or other stock, if any, ranking junior to the Series D Preferred and/or Series E Auction Rate Preferred as to dividends or upon liquidation) with respect to shares of Common Stock or any other stock of the Fund ranking junior to the Series D Preferred and/or Series E Auction Rate Preferred as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of Common Stock or other stock ranking junior to the Series D Preferred and/or Series E Auction Rate Preferred (except by conversion into or exchange for shares of the Fund ranking junior to the Series D Preferred and/or Series E Auction Rate Preferred as to dividends and upon liquidation), unless, in each case, (x) immediately after such transaction, the Fund would have Eligible Assets with an aggregate Discounted Value at least equal to the Basic Maintenance Amount applicable to, as the case may be, the Series D Preferred or Series E Auction Rate Preferred and the 1940 Act Asset Coverage with respect to the Fund's Outstanding Preferred Stock, including the Series D Preferred and/or Series E Auction Rate Preferred, would be achieved, (y) all cumulative and unpaid dividends due on or prior to the date of the transaction have been declared and paid in full with respect to the Preferred Stock, including the Series D Preferred and/or Series E Auction Rate Preferred (or will have been declared and sufficient funds for the full payment thereof will have been deposited with the Paying Agent or the dividend-disbursement agent, as applicable) and (z) the Fund has redeemed the full number of shares of Preferred Stock to be redeemed pursuant to any provision for mandatory redemption contained in the Articles Supplementary, including any Series D Preferred and/or Series E Auction Rate Preferred required or determined to be redeemed pursuant to any such provision.
No full dividend will be declared or paid on the Series D Preferred or Series E Auction Rate Preferred for any Dividend Period or part thereof, unless full cumulative dividends due through the most recent Dividend Payment Dates of the Outstanding Preferred Stock (including the Series D Preferred and/or Series E Auction Rate Preferred) have been or contemporaneously are declared and paid. If full
cumulative dividends due have not been paid on all such shares of Preferred Stock, any dividends being paid on such shares of Preferred Stock (including the Series D Preferred and/or Series E Auction Rate Preferred) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of Preferred Stock on the relevant Dividend Payment Date.
Asset Maintenance
The Fund is required to satisfy two separate asset maintenance requirements in respect of its Preferred Stock, including the Series D Preferred and/or Series E Auction Rate Preferred: (i) the Fund must maintain assets in its portfolio that have a value, discounted in accordance with the Rating Agency Guidelines, at least equal to the aggregate liquidation preference of each of the series of Preferred Stock, including Series D Preferred and/or Series E Auction Rate Preferred, plus specified liabilities, payment obligations and other amounts; and (ii) the Fund must maintain asset coverage for its Outstanding Preferred Stock, including for the Series D Preferred and/or Series E Auction Rate Preferred, of at least 200%.
Basic Maintenance Amount. The Fund is required to maintain, as of each Valuation Date, Eligible Assets having in the aggregate a Discounted Value at least equal to the Basic Maintenance Amount, calculated separately for Moody's (if Moody's is then rating the Series D Preferred or Series E Auction Rate Preferred at the request of the Fund) and S&P (if S&P is then rating the Series D Preferred or Series E Auction Rate Preferred at the request of the Fund). For this purpose, the value of the Fund's portfolio securities will be the Market Value. If the Fund fails to meet such requirement on any Valuation Date and such failure is not cured by the related Cure Date, the Fund will be required under certain circumstances to redeem some or all of the Series D Preferred or Series E Auction Rate Preferred.
The "Basic Maintenance Amount" means, as of any Valuation Date, the
dollar amount equal to (i) the sum of (a) the product of the number of shares
of each class or series of Preferred Stock Outstanding on such Valuation Date
multiplied by the Liquidation Preference per share; (b) to the extent not
included in (a) the aggregate amount of cash dividends (whether or not earned
or declared) that will have accumulated for each Outstanding share of
Preferred Stock from the most recent Dividend Payment Date to which dividends
have been paid or duly provided for (or, in the event the Basic Maintenance
Amount is calculated on a date prior to the initial Dividend Payment Date with
respect to a class or series of the Preferred Stock, then from the date of
original issue) through the Valuation Date plus all dividends to accumulate on
the Preferred Stock then Outstanding during the 70 days following such
Valuation Date or, if less, during the number of days following such Valuation
Date that shares of Preferred Stock called for redemption are scheduled to
remain Outstanding; (c) the Fund's other liabilities due and payable as of
such Valuation Date (except that dividends and other distributions payable by
the Fund on Common Stock will not be included as a liability) and such
liabilities projected to become due and payable by the Fund during the 90 days
following such Valuation Date (excluding liabilities for investments to be
purchased and for dividends and other distributions not declared as of such
Valuation Date); and (d) any current liabilities of the Fund as of such
Valuation Date to the extent not reflected in (or specifically excluded by)
any of (i)(a) through (i)(c) (including, without limitation, and immediately
upon determination, any amounts due and payable by the Fund pursuant to
reverse repurchase agreements and any payables for assets purchased as of such
Valuation Date) less (ii) (a) the adjusted value of any of the Fund's assets
or (b) the face value of any of the Fund's assets if, in the case of both
(ii)(a) and (ii)(b), such assets are either cash or evidences of indebtedness
which mature prior to or on the date of redemption or repurchase of shares of
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or evidences of indebtedness which have a rating assigned by Moody's
of at least "Aaa","P-1", "VMIG-1" or "MIG-1" or by S&P of at least "AAA",
"SP-1+" or "A-1+", and are irrevocably held by the Fund's
custodian bank in a segregated account or deposited by the Fund with the dividend-disbursing agent or Paying Agent, as the case may be, for the payment of the amounts needed to redeem or repurchase Preferred Stock subject to redemption or repurchase or any of (i)(b) through (i)(d); and provided that in the event the Fund has repurchased Preferred Stock and irrevocably segregated or deposited assets as described above with its custodian bank or the dividend-disbursing agent or Paying Agent for the payment of the repurchase price the Fund may deduct 100% of the Liquidation Preference of such Preferred Stock to be repurchased from (i) above.
The Discount Factors - the criteria used to determine the Discounted Value of the Fund's portfolio holdings for purposes of determining compliance with the Basic Maintenance Amount - are based on the criteria established by each Rating Agency in connection with rating, as the case may be, the Series D Preferred or Series E Auction Rate Preferred. These factors include, but are not limited to, the sensitivity of the market value of the relevant asset to changes in interest rates, the liquidity and depth of the market for the relevant asset, the credit quality of the relevant asset (for example, the lower the rating of a debt obligation, the higher the related discount factor) and the frequency with which the relevant asset is marked to market. In no event will the Discounted Value of any asset of the Fund exceed its unpaid principal balance or face amount as of the date of calculation. Upon any failure to maintain the required Eligible Assets, the Fund will seek to alter the composition of its portfolio to re-attain the Basic Maintenance Amount on or prior to the applicable Cure Date, thereby incurring additional transaction costs and possible losses and/or gains on dispositions of portfolio securities.
The Fund may, but is not required to, adopt any modifications to the rating agency guidelines that may hereafter be established by Moody's or S&P. Failure to adopt any such modifications, however, may result in a change in the relevant rating agency's ratings or a withdrawal of such ratings altogether. In addition, any rating agency providing a rating for the Series D Preferred or the Series E Auction Rate Preferred at the request of the Fund may, at any time, change or withdraw any such rating. The Board of Directors, without further action by the stockholders, may amend, alter, add to or repeal certain of the definitions and related provisions that have been adopted by the Fund pursuant to the rating agency guidelines if the Board determines that such modification is necessary to prevent a reduction in rating of the shares of preferred stock by Moody's and/or S&P, as the case may be, is in the best interests of the holders of shares of common stock and is not adverse to the holders of preferred stock in view of advice to the Fund by Moody's and/or S&P (or such other rating agency then rating the Series D Preferred and/or Series E Auction Rate Preferred at the request of the Fund) that such modification would not adversely affect, as the case may be, its then current rating of the Series D Preferred and/or the Series E Auction Rate Preferred.
The Board of Directors may amend the Articles Supplementary definition of "Maximum Rate" (the "maximum rate" as defined below under " -- Dividends on the Series E Auction Rate Preferred -- Maximum Rate") to increase the percentage amount by which the applicable reference rate is multiplied to determine the maximum rate without the vote or consent of the holders of Series E Auction Rate Preferred or any other stockholder of the Fund, but only after consultation with the broker-dealers and with confirmation from each applicable rating agency that the Fund could meet applicable rating agency asset coverage tests immediately following any such increase
1940 Act Asset Coverage. As of each Valuation Date, the Fund will determine whether the 1940 Act Asset Coverage is met as of that date. The Fund will deliver, with respect to the Series E Auction Rate Preferred, to the Auction Agent and each Rating Agency a 1940 Act Asset Coverage Certificate
which sets forth the determination of the preceding sentence (i) as of the Date of Original Issue and, thereafter, (ii) as of (x) the last Business Day of each March, June, September and December and (y) a Business Day on or before any 1940 Act Asset Coverage Cure Date following a failure to meet 1940 Act Asset Coverage. Such 1940 Act Asset Coverage Certificate will be delivered in the case of clause (i) on the Date of Original Issue and in the case of clause (ii) on or before the seventh Business Day after the last Business Day of such March, June, September and December, as the case may be, or the relevant Cure Date.
Notices. The Fund must deliver a Basic Maintenance Report to each applicable Rating Agency and the Auction Agent, if any, which sets forth, as of the related Monthly Valuation Date, Eligible Assets sufficient to meet or exceed the applicable Basic Maintenance Amount, the Market Value and Discounted Value thereof (in a series and in the aggregate) and the applicable Basic Maintenance Amount. Such Basic Maintenance Reports must be delivered as of the applicable Date of Original Issue and thereafter upon the occurrence of specified events on or before the fifth Business Day after the relevant Monthly Valuation Date or Cure Date.
As for any Valuation Date for the Series E Auction Rate Preferred for which the Fund's ratio of the Discounted Value of Eligible Assets in respect of any Rating Agency to the Basic Maintenance Amount is less than or equal to 110%, the Fund shall deliver, by fax or email before 5:00 p.m. New York City time on the first Business Day following such Valuation Date, notice of such ratio to each Rating Agency.
Deposit Assets Requirements Relating to the Series E Auction Rate Preferred
The Fund is obligated to deposit in a segregated custodial account a specified amount of Deposit Assets not later than 12:00 noon, New York City time, on each Dividend Payment Date and each Redemption Date relating to the Series E Auction Rate Preferred. These Deposit Assets, in all cases, will have an initial combined value greater than or equal to the cash amounts payable on the applicable Dividend Payment Date or Redemption Date, and will mature prior to such date.
Restrictions on Transfer Relating to the Series E Auction Rate Preferred
Series E Auction Rate Preferred may be transferred only (i) pursuant to an Order placed in an Auction, (ii) to or through a Broker-Dealer, or (iii) to the Fund or any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless the selling Existing Holder or the Agent Member of such Existing Holder, in the case of an Existing Holder whose shares are listed in its own name on the books of the Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer between persons holding Series E Auction Rate Preferred through different Broker-Dealers, advises the Auction Agent of such transfer. Any certificates representing the Series E Auction Rate Preferred shares issued to the Securities Depository will bear legends with respect to the restrictions described above and stop-transfer instructions will be issued to the Transfer Agent and/or Registrar.
MOODY'S AND S&P GUIDELINES
The descriptions of the Moody's and S&P Guidelines contained in this SAI do not purport to be complete and are subject to and qualified in their entireties by reference to the applicable Articles Supplementary. Copies of the Articles Supplementary are filed as an exhibit to the registration statement
of which the Prospectus and this SAI are a part and may be inspected, and copies thereof may be obtained, as described under "Additional Information" in the Prospectus.
The composition of the Fund's portfolio reflects guidelines (referred to herein as the "Rating Agency Guidelines") established by Moody's and S&P, each a Rating Agency, in connection with the Fund's receipt of a rating of "Aaa" from Moody's and "AAA" from S&P, for the Series E Auction Rate Preferred and a rating of "Aaa" from Moody's for the Series D Preferred. These Rating Agency Guidelines relate, among other things, to industry and credit quality characteristics of issuers and diversification requirements and specify various Discount Factors for different types of securities (with the level of discount greater as the rating of a security becomes lower). Under the Rating Agency Guidelines, certain types of securities in which the Fund may otherwise invest consistent with its investment strategy are not eligible for inclusion in the calculation of the Discounted Value of the Fund's portfolio. Such instruments include, for example, private placements (other than Rule 144A Securities) and other securities not within the Rating Agency Guidelines. Accordingly, although the Fund reserves the right to invest in such securities to the extent set forth herein, such securities have not and it is anticipated that they will not constitute a significant portion of the Fund's portfolio.
The Rating Agency Guidelines require that the Fund maintain assets having an aggregate Discounted Value, determined on the basis of such guidelines, greater than the aggregate liquidation preference of the Outstanding shares of Series D Preferred, Series E Auction Rate Preferred and other Preferred Stock plus specified liabilities, payment obligations and other amounts, as of periodic Valuation Dates. The Rating Agency Guidelines also require the Fund to maintain asset coverage for the Outstanding Shares of Series D Preferred, Series E Auction Rate Preferred and other Preferred Stock on a non-discounted basis of at least 200% as of the end of each month, and the 1940 Act requires this asset coverage as a condition to paying dividends or other distributions on Common stock. See "Additional Information Concerning The Series D Preferred and Series E Auction Rate Preferred - Asset Maintenance." The effect of compliance with the Rating Agency Guidelines may be to cause the Fund to invest in higher quality assets and/or to maintain relatively substantial balances of highly liquid assets or to restrict the Fund's ability to make certain investments that would otherwise be deemed potentially desirable by the Investment Adviser, including private placements of other than Rule 144A Securities (as defined herein). The Rating Agency Guidelines are subject to change from time to time with the consent of the relevant Rating Agency and will apply to the Series D Preferred or Series E Auction Rate Preferred only so long as the relevant Rating Agency is rating such stock at the request of the Fund. If in the future the Fund elected to issue senior securities rated by a rating agency other than Moody's or S&P, other similar arrangements might apply with respect to those securities.
The Fund intends to maintain, at specified times, a Discounted Value for its portfolio at least equal to the amount specified by each Rating Agency (the "Basic Maintenance Amount"), the determination of which is as set forth under "Additional Information Concerning The Series D Preferred and Series E Auction Rate Preferred -- Asset Maintenance." Moody's and S&P have each established separate guidelines for determining Discounted Value. To the extent any particular portfolio holding does not satisfy the applicable Rating Agency's Guidelines, all or a portion of such holding's value will not be included in the calculation of Discounted Value (as defined by such Rating Agency).
Upon any failure to maintain the required Discounted Value, the Fund may seek to alter the composition of its portfolio to reestablish required asset coverage within the specified ten Business Day cure period, thereby incurring additional transaction costs and possible losses and/or gains on dispositions of portfolio securities.
The Rating Agency Guidelines do not impose any limitations on the percentage of Fund assets that may be invested in holdings not eligible for inclusion in the calculation of the Discounted Value of the Fund's portfolio. The amount of such assets included in the portfolio at any time may vary depending upon the rating, diversification and other characteristics of the assets included in the portfolio which are eligible for inclusion in the Discounted Value of the portfolio under the Rating Agency Guidelines.
A rating of preferred stock as "Aaa" (as described by Moody's or "AAA" (as described by S&P) indicates strong asset protection, conservative balance sheet ratios and positive indications of continued protection of preferred dividend requirements. A "Aaa" or "AAA" credit rating of preferred stock does not address the likelihood that a resale mechanism (such as the Auction) will be successful. As described respectively by Moody's and S&P, an issue of preferred stock which is rated "Aaa" or "AAA" is considered to be top-quality preferred stock with good asset protection and the least risk of dividend impairment within the universe of preferred stocks.
The Fund will pay certain fees to Moody's and S&P for rating, as the case may be, the Series D Preferred or Series E Auction Rate Preferred . Such ratings may be subject to revision or withdrawal by the assigning Rating Agency for any time. Any rating of the Series D Preferred or Series E Auction Rate Preferred should be evaluated independently of any other ratings. Ratings are not recommendations to purchase, hold or sell Series D Preferred or Series E Auction Rate Preferred, inasmuch as the rating does not comment as to market price or suitability for a particular investor. The rating is based on current information furnished to Moody's and S&P by the Fund and obtained by Moody's and S&P from other sources. The rating may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information. The Fund has no current intention to file a voluntary application for relief under federal bankruptcy law or any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent.
MOODY'S GUIDELINES
Under the Moody's guidelines, the Fund is required to maintain specified discounted asset values for its portfolio representing the Preferred Basic Maintenance Amount. To the extent any particular portfolio holding does not meet the applicable guidelines, it is not included for purposes of calculating the Discounted Value of the Fund's portfolio.
The following Discount Factors apply to portfolio holdings as described below, subject to diversification, issuer size and other requirements, in order to constitute Moody's Eligible Assets includable within the calculation of Discounted Value:
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------- ----------------
Short Term Money Market Instruments (other than U.S. Government Obligations set
forth below) and other commercial paper:
U.S. Treasury Securities with final maturities that are
less than or equal to 60 days.................................................. 1.00
Demand or time deposits, certificates of deposit and bankers' acceptances
includable in Moody's Short Term Money Market Instruments...................... 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or less................ 1.00
Commercial paper rated P-1 by Moody's maturing in more than
30 days but in 270 days or less............................................... 1.15
B-47
|
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------- ----------------
Commercial paper rated A-1+ by S&P maturing in 270 days or less....................... 1.25
Repurchase obligations includable in Moody's Short Term Money Market
Instruments if term is less than 30 days and counterparty is rated
at least A2...................................................................... 1.00
Other repurchase obligations.......................................................... **
U.S. Common Stock and Common Stock of foreign issuers for which ADRs
are traded
Utility............................................................................... 1.70
Industrial............................................................................ 2.64
Financial............................................................................. 2.41
Transportation...................................................................... 3.4
Common Stock of foreign issuers (in existence for at least five years) for which no
ADRs are traded......................................................................... 4.00
Convertible preferred stocks............................................................... 3.00
Preferred stocks:
Auction rate preferred stocks
Cumulative......................................................... 3.50
Non-Cumulative..................................................... 3.60
Other preferred stocks issued by issuers in the financial and industrial industries
Cumulative......................................................... 1.97
Non-Cumulative..................................................... 2.07
Other preferred stocks issued by issuers in the utilities industry
Cumulative......................................................... 1.55
Non-Cumulative..................................................... 1.65
U.S. Government Obligations (other than U.S. Treasury Securities set forth above or
U.S. Treasury Securities Strips set forth below)........................................ 1.04-1.26
U.S. Treasury Securities Strips............................................................ 1.04-1.66
Corporate Debt:
Non-convertible corporate debt rated Aaa................................................ 1.09-1.50
Non-convertible corporate debt rated at least Aa3....................................... 1.12-1.55
Non-convertible corporate debt rated at least A3........................................ 1.15-1.60
Non-convertible corporate debt rated at least Baa3...................................... 1.18-1.65
Non-convertible corporate debt rated at least Ba3....................................... 1.37-1.96
Non-convertible corporate debt rated at least B1and B2.................................. 1.50-2.29
Non-convertible unrated corporate debt.................................................. 2.50
Convertible corporate debt rated at least Aa3 issued by the following type of
issuers:
Utility............................................................................... 1.67
__________________
** Discount factor applicable to the underlying assets.
B-48
|
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------- ----------------
Industrial............................................................................ 2.61
Financial............................................................................. 2.38
Transportation........................................................................ 2.65
Convertible corporate debt rated at least A3 issued by the following type
of issuers:
Utility............................................................................... 1.72
Industrial............................................................................ 2.66
Financial............................................................................. 2.43
Transportation........................................................................ 2.75
Convertible corporate debt rated at least Baa3 issued by the following type
of issuers:
Utility............................................................................... 1.88
Industrial............................................................................ 2.82
Financial............................................................................. 2.59
Transportation........................................................................ 2.85
Convertible corporate debt rated at least Ba3 issued by the following type
of issuers:
Utility............................................................................... 1.95
Industrial............................................................................ 2.90
Financial............................................................................. 2.65
Transportation........................................................................ 2.90
Convertible corporate debt rated at least B2 issued by the following type
of issuers:
Utility............................................................................... 1.99
Industrial............................................................................ 2.93
Financial............................................................................. 2.70
Transportation........................................................................ 2.95
|
"Moody's Eligible Assets" means:
(a) cash (including, for this purpose, receivables for investments sold to a counterparty whose senior debt securities are rated at least "Baa3" by Moody's or a counterparty approved by Moody's and payable within five Business Days following such Valuation Date and dividends and interest receivable within 49 days on investments);
(b) Short-Term Money Market Instruments;
(c) commercial paper that is not includable as a Short-Term Money Market Instrument having on the Valuation Date a rating from Moody's of at least "P-1" and maturing within 270 days;
(d) preferred stocks (i) which either (A) are issued by
issuers whose senior debt securities are rated at least "Baa1" by Moody's or
(B) are rated at least "Baa3" by Moody's or (C) in the event an issuer's
senior debt securities or preferred stock is not rated by Moody's, which
either (1) are issued by an issuer whose senior debt securities are rated at
least "A-" by S&P or (2) are rated at least "A-" by S&P and for this purpose
have been assigned a Moody's equivalent rating of at least "Baa3", (ii) of
issuers which have (or, in the case of issuers which are special purpose
corporations, whose parent companies have) common stock listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market
System, (iii) which have a minimum issue size (when taken together with other
of the issuer's issues of similar tenor) of $50,000,000, (iv) which have paid
cash dividends consistently during the preceding three-year period (or, in the
case of new issues without a dividend history, are rated at least "A1" by
Moody's or, if not rated by Moody's, are rated at least "AA-" by S&P), (v)
which pay cumulative cash dividends in U.S. dollars, (vi) which are not
convertible into any other class of stock and do not have warrants attached,
(vii) which are not issued by issuers in the transportation industry and
(viii) in the case of auction rate preferred stocks, which are rated at least
"Aa3" by Moody's, or if not rated by Moody's, "AAA" by S&P, "AAA" by Fitch or
are otherwise approved in writing by Moody's and have never had a failed
auction; provided, however, that for this purpose the aggregate Market Value
of the Fund's holdings of any single issue of auction rate preferred stock
shall not be more than 1% of the Fund's total assets;
(e) common stocks (i) (A) which are traded on a nationally recognized stock exchange or in the over-the-counter market, (B) if cash dividend paying, pay cash dividends in U.S. dollars and (C) which may be sold without restriction by the Fund; provided, however, that (y) common stock which, while a Moody's Eligible Asset owned by the Fund, ceases paying any regular cash dividend will no longer be considered a Moody's Eligible Asset until 71 days after the date of the announcement of such cessation, unless the issuer of the common stock has senior debt securities rated at least A3 by Moody's and (z) the aggregate Market Value of the Fund's holdings of the common stock of any issuer in excess of 4% in the case of utility common stock and 6% in the case of non-utility common stock of the aggregate Market Value of the Fund's holdings shall not be Moody's Eligible Assets, (ii) which are securities denominated in any currency other than the U.S. dollar or securities of issuers formed under the laws of jurisdictions other than the United States, its states and the District of Columbia for which there are dollar-denominated American Depository Receipts ("ADRs") or their equivalents which are traded in the United States on exchanges or over-the-counter and are issued by banks formed under the laws of the United States, its states or the District of Columbia or (iii) which are securities of issuers formed under the laws of jurisdictions other than the United States (and in existence for at least five years) for which no ADRs are traded; provided, however, that the aggregate Market Value of the Fund's holdings of securities denominated in currencies other than the U.S. dollar and ADRs in excess of (A) 6% of the aggregate Market Value of the outstanding shares of common stock of such issuer thereof or (B) 10% of the Market Value of the Fund's Moody's Eligible Assets with respect to issuers formed under the laws of any single such non-U.S. jurisdiction other than Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom, shall not be a Moody's Eligible Asset;
(f) ADR securities, based on the following guidelines: (i) Sponsored ADR program or (ii) Level II or Level III ADRs. Private placement Rule 144A ADRs are not eligible for collateral consideration. Global GDR programs will be evaluated on a case by case basis;
(g) U.S. Government Obligations;
(h) corporate evidences of indebtedness (i) which may be sold without restriction by the Fund which are rated at least "B3" ("Caa" subordinate) by Moody's (or, in the event the security is not rated by Moody's, the security is rated at least "BB-" by S&P or "BB-" by Fitch and which for this purpose is assigned a Moody's equivalent rating of one full rating category lower), with such rating confirmed on
each Valuation Date, (ii) which have a minimum issue size of at least (A) $100,000,000 if rated at least "Baa3" or (B) $50,000,000 if rated "B" or "Ba3", (iii) which are not convertible or exchangeable into equity of the issuing corporation and have a maturity of not more than 30 years and (iv) for which, if rated below "Baa3" or not rated, the aggregate Market Value of the Fund's holdings do not exceed 10% of the aggregate Market Value of any individual issue of corporate evidences of indebtedness calculated at the time of original issuance;
(i) convertible corporate evidences of indebtedness (i) which are issued by issuers whose senior debt securities are rated at least "B2" by Moody's (or, in the event an issuer's senior debt securities are not rated by Moody's, which are issued by issuers whose senior debt securities are rated at least "BB" by S&P or "BB" by Fitch and which for this purpose is assigned a Moody's equivalent rating of one full rating category lower), (ii) which are convertible into common stocks which are traded on the New York Stock Exchange or the American Stock Exchange or are quoted on the Nasdaq National Market System and (iii) which, if cash dividend paying, pay cash dividends in U.S. dollars; provided, however, that once convertible corporate evidences of indebtedness have been converted into common stock, the common stock issued upon conversion must satisfy the criteria set forth in clause (e) above and other relevant criteria set forth in this definition in order to be a Moody's Eligible Asset; provided, however, that the Fund's investments in auction rate preferred stocks described in clause (d) above shall be included in Moody's Eligible Assets only to the extent that the aggregate Market Value of such stocks does not exceed 10% of the aggregate Market Value of all of the Fund's investments meeting the criteria set forth in clauses (a) through (g) above less the aggregate Market Value of those investments excluded from Moody's Eligible Assets pursuant to the proviso appearing after clause (j) below; and
(j) no assets which are subject to any lien or irrevocably deposited by the Fund for the payment of amounts needed to meet the following obligations may be includable in Moody's Eligible Assets.
Notwithstanding anything to the contrary in the preceding clauses
(a)-(j), the Fund's investment in preferred stock, common stock, corporate
evidences of indebtedness and convertible corporate evidences of indebtedness
shall not be treated as Moody's Eligible Assets except to the extent they
satisfy the following diversification requirements (utilizing Moody's Industry
and Sub-industry Categories) with respect to the Market Value of the Fund's
holdings:
Issuer:
Non-Utility Utility
Maximum Single Maximum Single
Moody's Rating(1)(2) Issuer(3)(4) Issuer(3)(4)
-------------------- ------------ ------------
Aaa 100% 100%
Aa 20% 20%
A 10% 10%
CS/CB, "Baa", Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 or below 2% 2%
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Industry and State:
Utility Utility
Non-Utility Maximum Maximum
Maximum Single Single Sub- Single
Moody's Rating(1) Industry(3) Industry(3)(6) State(3)
----------------- ----------- -------------- --------
Aaa 100% 100% 100%
Aa 60% 60% 20%
A 40% 50% 10%(7)
CS/CB, "Baa", Baa(5) 20% 50% 7%(7)
Ba 12% 12% 0%
B1/B2 8% 8% 0%
B3 or below 5% 5% 0%
______________
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(1) Unless conclusions regarding liquidity risk as well as estimates of both the probability and severity of default for the Fund's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or other debt security is unrated by Moody's, S&P or Fitch, the Fund will use the percentage set forth under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent.
(2) Corporate evidences of indebtedness from issues ranging from $50,000,000 to $100,000,000 are limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one name.
(5) CS/CB refers to common stock and convertible corporate evidences of indebtedness, which are diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility evidences of indebtedness and utility convertible evidences of indebtedness, the definition of industry refers to sub-industries (electric, water, hydro power, gas, diversified). Investments in other sub-industries are eligible only to the extent that the combined sum represents a percentage position of the Moody's Eligible Assets less than or equal to the percentage limits in the diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by California, New York and Texas.
S&P GUIDELINES
Under the S&P guidelines, the Fund is required to maintain specified discounted asset values for its portfolio representing the Series E Auction Rate Preferred Basic Maintenance Amount (as defined below). To the extent any particular portfolio holding does not meet the applicable guidelines, it is not included for purposes of calculating the Discounted Value of the Fund's portfolio, and, among the requirements, the amount of such assets included in the portfolio at any time, if any, may vary depending upon the credit quality (and related Discounted Value) of the Fund's eligible assets at such time.
The Series E Auction Rate Preferred Basic Maintenance Amount includes the sum of (i) $25,000 times the number of Series E Auction Rate Preferred shares then Outstanding, (ii) the liquidation preference of each additional series of Preferred Stock of the Fund times the number of shares of such series then outstanding and (iii) certain accrued and projected payment obligations of the Fund. Upon any failure to maintain the required Discounted Value, the Fund may seek to alter the composition of its portfolio to reestablish required asset coverage within the specified ten Business Day cure period, thereby incurring additional transaction costs and possible losses and/or gains on dispositions of portfolio securities.
The following Discount Factors apply to portfolio holdings as described below in order to constitute S&P Eligible Assets includable within the calculation of Discounted Value:
Asset Class Obligor Overcollateralization
(Collateral) Advance Rates (1) Factors (1)
------------ ----------------- -----------
Public Equity Small-Cap 46.0% 217.4%
Public Equity Mid-Cap 53.6% 186.6%
Public Equity Large-Cap 59.7% 167.6%
Cash and Other Deposit
Securities with Maturities 100.0% 100.0%
of 30 days or less
______________
(1) For an S&P rating of AAA.
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"S&P Seasoned Eligible Assets" means:
(a) Deposit Assets; and
(b) common stocks that satisfy all of the following conditions:
(i) such common stock (including the common stock of any predecessor or constituent issuer) has been traded on a recognized national securities exchange or quoted on the National Market System (or any equivalent or successor thereto) of Nasdaq for at least 450 days,
(ii) the Market Capitalization of such issuer of common stock exceeds $100 million,
(iii) the issuer of such common stock is not an entity that is treated as a partnership for federal income tax purposes,
(iv) if such issuer is organized under the laws of any jurisdiction other than the United States, any state thereof, any possession or territory thereof or the District of Columbia, the common stock of such issuer held by the Fund is traded on a recognized national securities exchange or quoted on the National Market System of Nasdaq either directly or in the form of depository receipts, and
(v) if such issuer is registered as an investment company under the 1940 Act, such issuer does not invest more than 25% of the value of its gross assets in securities that are not S&P Eligible Assets by reason of clause (iv) above;
provided, however, that the Fund's holdings of the common stock of any single issuer that satisfies the conditions set forth in clauses (i) through (v) above shall be included in S&P Eligible Assets only to the extent that:
(1) such holdings may be sold publicly by the Fund at any time without registration,
(2) to the extent remaining eligible after the operation of item (1) above, such holdings do not exceed a number of shares representing the average weekly trading volume of such common stock during the preceding 30 day period,
(3) to the extent remaining eligible after the operation of items (1) and (2) above, the aggregate Market Value of such holdings, when added to the aggregate Market Value of the Fund's holdings of all other similarly eligible shares of common stock of issuers in the same Industry Classification, does not exceed 10% of the aggregate Market Value of the Fund's S&P Eligible Assets, and
(4) to the extent remaining eligible after the operation of items (1) through (3) above, the aggregate Market Value of each of the three largest issuers is not in excess of 5% of the aggregate Market Value of the Fund's S&P Eligible Assets, and of the remaining issuers, is not in excess of 2% of the aggregate Market Value of the Fund's S&P Eligible Assets.
(c) preferred stocks on such basis as S&P may determine in response to a request from the Fund.
Notwithstanding the foregoing, an asset will not be considered an S&P Eligible Asset if it is held in a margin account, is subject to any material lien, mortgage, pledge, security interest or security agreement of any kind or has been deposited irrevocably for the payment of dividends, redemption payments or any other payment or obligation under the Fund's Articles Supplementary.
In addition, so long as any Series E Auction Rate Preferred is Outstanding and S&P is rating such Series E Auction Rate Preferred at the Fund's request, the Fund will not, unless it has received written confirmation that any such transaction would not impair the rating then assigned by S&P to the Series E Auction Rate Preferred, engage in any one or more of the following transactions:
(a) purchase or sell futures contracts; write, purchase or sell options on futures contracts; or write put options (except covered put options) or call options (except covered call options) on securities owned by the Fund (collectively, "S&P Hedging Transactions"), except subject to the following limitations:
(i) for each net long or short position in S&P Hedging Transactions, the Fund will maintain in a segregated account with the Fund's custodian an amount of cash or readily marketable securities having a value, when added to any amounts on deposit with the Fund's futures commission merchants or brokers as margin or premium for such position, at least equal to the market value of the Fund's potential obligations on such position, marked-to-market on a daily basis, in each case as and to the extent required by the applicable rules or orders of the SEC or by interpretations of the SEC's staff;
(ii) the Fund will not engage in any S&P Hedging Transaction which would cause the Fund at the time of such transaction to own or have sold the lesser of (A) outstanding futures contracts, in aggregate, based on the Standard & Poor's 500 Index, the Dow Jones Industrial Average, the Russell 2000 Index, the Wilshire 5000 Index, the Nasdaq Composite Index and the New York Stock Exchange Composite Index (or any component of any of the forgoing) exceeding in number 50% of the market value of the Fund's total assets or (B) outstanding futures contracts based on any of the aforementioned indices exceeding in number 10% of the average number of daily traded futures contracts based on such index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal;
(iii) the Fund will engage in closing transactions to close out any outstanding futures contract which the Fund owns or has sold or any outstanding option thereon owned by the Fund in the event (A) the Fund does not have S&P Eligible Assets with an aggregate Discounted Value equal to or greater than the Series E Auction Rate Preferred Basic Maintenance Amount on two consecutive Valuation Dates and (B) the Fund is required to pay variation margin on the second such Valuation Date;
(iv) the Fund will engage in a closing transaction to close out any outstanding futures contract or option thereon at least one week prior to the delivery date under the terms of the futures contract or option thereon unless the corporation holds the securities deliverable under such terms; and
(v) when the Fund writes a futures contract or option thereon, either the amount of margin posted by the Fund (in the case of a futures contract) or the marked-to-market value of the Fund's obligation (in the case of a put option written by the Fund) shall be treated as a liability of the Fund for purposes of calculating the Series E Auction Rate Preferred Basic Maintenance Amount, or, in the event the Fund writes a futures contract or option thereon which requires delivery of an underlying security and the Fund does not wish to treat its obligations with respect thereto as a liability for purposes of calculating the Series E Auction Rate Preferred Basic Maintenance Amount, it shall hold such underlying security in its portfolio and shall not include such security to the extent of such contract or option as an S&P Eligible Asset.
(b) borrow money, except for the purpose of clearing securities transactions if (i) the Series E Auction Rate Preferred Basic Maintenance Amount would continue to be satisfied after giving effect to such borrowing and (ii) such borrowing (A) is privately arranged with a bank or other person and is not intended to be publicly distributed or (B) is for "temporary purposes," and is in an amount not exceeding 5 percent of the market value of the total assets of the Fund at the time of the borrowing; for purposes of the foregoing, "temporary purposes" means that the borrowing is to be repaid within sixty days and is not to be extended or renewed;
(c) engage in any short sales of equity securities (other than short sales against the box) unless the Fund maintains in a segregated account with the Fund's custodian an amount of cash or other readily marketable securities having a market value, when added to any amounts on deposit with the Fund's broker as collateral for its obligation to replace the securities borrowed and sold short, at least equal to the current market value of securities sold short, marked-to-market on a daily basis;
(d) utilize any pricing service other than FT Interactive Data, Reuters, Telekurs, Bloomberg Financial Markets, J.J. Kenney Pricing Service, Merrill Lynch Securities Pricing Service or Bridge Data Corp, and any pricing service then permitted by S&P; or
(e) enter into any reverse repurchase agreement, other than with a counterparty that is rated at least A-1+ by S&P.
NET ASSET VALUE
The net asset value of the Fund's shares will be computed based on the market value of the securities it holds and will generally be determined daily as of the close of regular trading on the NYSE.
Portfolio instruments of the Fund which are traded in a market subject to government regulation on which trades are reported contemporaneously generally will be valued at the last sale price on the principal market for such instruments as of the close of regular trading on the day the instruments are being valued, or lacking any sales, at the average of the bid and asked price on the principal market for such instruments on the most recent date on which bid and asked prices are available. Initial public offering securities are initially valued at cost, and thereafter as any other equity security. Other readily marketable assets will be valued at the average of quotations provided by dealers maintaining an active market in such instruments. Short-term debt instruments that are credit impaired or mature in more than 60 days for which market quotations are available are valued at the latest average of the bid and asked prices obtained from a dealer maintaining an active market in that security. Short-term investments that are not credit impaired and mature in 60 days or fewer are valued at amortized cost from purchase price or value on the 61st day prior to maturity. Securities and other assets for which market quotations are not readily available will be valued at fair value as determined in good faith by or under the direction of the Investment Adviser in accordance with guidelines adopted by the Fund. The Fund may employ recognized pricing services from time to time for the purpose of pricing portfolio instruments (including non-U.S. dollar denominated assets and futures and options).
Trading takes place in various foreign markets on days which are not Business Days and on which therefore the Fund's net asset value per share is not calculated. The calculation of the Fund's net asset value may not take place contemporaneously with the determination of the prices of portfolio securities held by the Fund. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the NYSE will not be reflected in the Fund's calculation of net asset
value unless the Board of Directors deems that the particular event would materially affect the net asset value, in which case the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Directors.
Net asset value per share is calculated by dividing the value of the securities held plus any cash or other assets minus all liabilities, including accrued expenses, by the total number of shares outstanding at such time.
BENEFICIAL OWNERS
Name and Address of
Beneficial/Record Owner Amount of Shares and
as of September 15, 2003 Title of Class Nature of Ownership Percent of Class
------------------------ -------------- ------------------- ----------------
Cede & Co.* Common 115,753,308 (Record) 84.60%
P.O. Box 29
Bowling Green Station Series B Preferred 6,586,930 (Record) 99.08%
New York, NY 10274 Series C Auction 5,200 (Record) 100%
Rate Preferred
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* A nominee partnership of DTC.
As of September 15, 2003, the Directors and Officers of the Fund as a group beneficially owned approximately 1.14% of the outstanding shares of the Fund's common stock.
GENERAL INFORMATION
Book-Entry-Only Issuance
DTC will act as securities depository for the shares of Series D Preferred and/or Series E Auction Rate Preferred offered pursuant to the Prospectus. The information in this section concerning DTC and DTC's book-entry system is based upon information obtained from DTC. The securities offered hereby initially will be issued only as fully-registered securities registered in the name of Cede & Co. (as nominee for DTC). One or more fully-registered global security certificates initially will be issued, representing in the aggregate the total number of securities, and deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants deposit with DTC. DTC also facilities the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct DTC participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly through other entities.
Purchases of securities within the DTC system must be made by or through direct participants, which will receive a credit for the securities on DTC's records. The ownership interest of each actual purchaser of a security, a beneficial owner, is in turn to be recorded on the direct or indirect participants' records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the direct or indirect participants through which the beneficial owners purchased securities. Transfers of ownership interests in securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in securities, except as provided herein.
DTC has no knowledge of the actual beneficial owners of the securities being offered pursuant to this Prospectus; DTC's records reflect only the identity of the direct participants to whose accounts such securities are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payments on the securities will be made to DTC. DTC's practice is to credit direct participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices and will be the responsibility of such participant and not of DTC or the Fund, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of dividends to DTC is the responsibility of the Fund, disbursement of such payments to direct participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of direct and indirect participants. Furthermore each beneficial owner must rely on the procedures of DTC to exercise any rights under the Securities.
DTC may discontinue providing its services as securities depository with respect to the securities at any time by giving reasonable notice to the Fund. Under such circumstances, in the event that a successor securities depository is not obtained, certificates representing the Securities will be printed and delivered.
Counsel and Independent Accountants
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 is special counsel to the Fund in connection with the issuance of Series D Preferred and/or Series E Auction Rate Preferred.
PricewaterhouseCoopers LLP, independent accountants, 1177 Avenue of the Americas, New York, New York 10036, serve as auditors of the Fund and will annually render an opinion on the financial statements of the Fund.
FINANCIAL STATEMENTS
The audited financial statements included in the Semi-Annual Report to the Fund's Stockholders for the six months ended June 30, 2003, together with the report of PricewaterhouseCoopers LLP thereon, are also incorporated herein by reference from the Fund's Annual Report to Stockholders. All other portions of the Semi-Annual Report to Stockholders are not incorporated herein by reference and are not part of the Registration Statement. A copy of the Semi-Annual Report to Stockholders may be obtained without charge by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or by calling the Fund toll-free at 800-GABELLI (422-3554).
GLOSSARY
"AA Financial Composite Commercial Paper Rate" on any date means (i) the interest equivalent of the 7-day rate, in the case of a Dividend Period of 7 days or shorter; for Dividend Periods greater than 7 days but fewer than or equal to 31 days, the 30-day rate; for Dividend Periods greater than 31 days but fewer than or equal to 61 days, the 60-day rate; for Dividend Periods greater than 61 days but fewer than or equal to 91 days, the 90 day rate; for Dividend Periods greater than 91 days but fewer than or equal to 270 days, the rate described in (ii) below; for Dividend Periods greater than 270 days, the Treasury Index Rate; on commercial paper on behalf of issuers whose corporate bonds are rated "AA" by S&P, or the equivalent of such rating by another nationally recognized rating agency, as announced by the Federal Reserve Bank of New York for the close of business on the Business Day immediately preceding such date; or (ii) if the Federal Reserve Bank of New York does not make available such a rate, then the arithmetic average of the interest equivalent of such rates on commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by the Commercial Paper Dealers to the Auction Agent for the close of business on the Business Day immediately preceding such date (rounded to the next highest .001 of 1%). If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Financial Composite Commercial Paper Rate, such rate will be determined on the basis of the quotations (or quotation) furnished by the remaining Commercial Paper Dealers (or Dealer), if any, or, if there are no such Commercial Paper Dealers, by the Auction Agent pursuant to instructions from the Fund. For purposes of this definition, (A) "Commercial Paper Dealers" will mean (1) Citigroup Global Markets Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.; (2) in lieu of any thereof, its respective affiliate or successor; and (3) in the event that any of the foregoing will cease to quote rates for commercial paper of issuers of the sort described above, in substitution therefor, a nationally recognized dealer in commercial paper of such issuers then making such quotations selected by the Fund, and (B) "interest equivalent" of a rate stated on a discount basis for commercial paper of a given number of days maturity will mean a number equal to the quotient (rounded upward to the next higher one-thousandth of 1%) of (1) such rate expressed as a decimal, divided by (2) the difference between (x) 1.00 and (y) a fraction, the numerator of which will be the product of such rate expressed as a decimal, multiplied by the number of days in which such commercial paper will mature and the denominator of which will be 360.
"Adjusted Value" of each Eligible Asset shall be computed as follows:
(i) cash shall be valued at 100% of the face value thereof; and
(ii) all other Eligible Assets shall be valued at the applicable Discounted Value thereof; and
(iii) each asset that is not an Eligible Asset shall be valued at zero.
"Administrator" means the other party to the Administration Agreement with the Fund, which shall initially be Gabelli Funds, LLC, a New York limited liability company, and will include, as appropriate, any sub-administrator appointed by the Administrator.
"Advance Rate" means (a) so long as S&P is rating the Series E Preferred Stock at the Corporation's request, the Advance Rates set forth in the definition of S&P Rating Factor or (b) any applicable advance rate established by any Other Rating Agency, whichever is applicable.
"Affiliate" means, with respect to the Auction Agent, any person known to the Auction Agent to be controlled by, in control of or under common control with the Fund; provided, however, that no Broker-Dealer controlled by, in control of or under common control with the Fund will be deemed to be an Affiliate nor will any Person controlled by, in control of or under common control with such Person one of the directors or executive officers of which is director of the Fund be deemed to be an Affiliate solely because such director or executive officer is also a director of the Fund.
"Agent Member" means a member of or a participant in the Securities Depository that will act on behalf of a Bidder.
"All Hold Rate" means 80% of the "AA" Financial Composite Commercial Paper Rate.
"Applicable Rate" means, with respect to the Series E Auction Rate Preferred, for each Dividend Period (i) if Sufficient Clearing Bids exist for the Auction in respect thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist for the Auction in respect thereof or an Auction does not take place with respect to such Dividend Period because of the commencement of a Default Period that ends prior to an Auction Date, the Maximum Rate and (iii) if all Series E Auction Rate Preferred is the subject of Submitted Hold Orders for the Auction in respect thereof, the All Hold Rate.
"Auction" means each periodic operation of the Auction Procedures.
"Auction Agent" means The Bank of New York unless and until another commercial bank, trust company, or other financial institution appointed by a resolution of the Board of Directors enters into an agreement with the Fund to follow the Auction Procedures for the purpose of determining the Applicable Rate.
"Auction Date" means the last day of the initial Dividend Period and each seventh day after the immediately preceding Auction Date; provided, however, that if any such seventh day is not a Business Day, such Auction Date shall be the first preceding day that is a Business Day and the next Auction Date, if for a Standard Dividend Period, shall (subject to the same advancement procedure) be the seventh day after the date that the preceding Auction Date would have been if not for the advancement procedure; provided further, however, that the Auction Date for the Auction at the conclusion of any Special Dividend Period shall be the last Business Day in such Special Dividend Period and that no more than one Auction shall be held during any Dividend Period; provided, further, however, that the Auction Date following a Default Period shall be the last Business Day in the Standard Dividend Period that commenced during such Default Period. Notwithstanding the foregoing, in the event an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, then the length of the then-current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events).
"Auction Procedures" means the procedures for conducting Auctions described in "Additional Information Concerning the Auction for Series E Auction Rate Preferred."
"Available Series E Auction Rate Preferred" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate."
"Basic Maintenance Amount" has the meaning set forth in "Additional Information Concerning The Series D Preferred and Series E Auction Rate Preferred -- Asset Maintenance."
"Basic Maintenance Report" means, with respect to the Series E Auction Rate
Preferred, a report prepared by the Administrator which sets forth, as of the
related Monthly Valuation Date, (i) Moody's Eligible Assets and S&P Eligible
Assets sufficient to meet or exceed the Basic Maintenance Amount, (ii) the
Market Value and Discounted Value thereof (seriatim and in the aggregate),
(iii) the Basic Maintenance Amount, and (iv) the net asset value of the Fund.
Such report will also include (A) the month-end closing
price for the Common Stock of the Fund (B) the monthly total-return per Common Stock, which will be determined based upon month-end closing share prices, assuming reinvestment of all dividends paid during such month and (C) the total leverage positions of the Fund. For the purposes of this Articles Supplementary, "Basic Maintenance Report" or "Report" shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Beneficial Owner" with respect to Series E Auction Rate Preferred, means a customer of a Broker- Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of such shares of such series.
"Bid" has the meaning set forth in "Additional Information Concerning the Auction for the Series E Auction Rate Preferred -- Orders by Existing Holders and Potential Holders."
"Bidder" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Orders by Existing Holders and Potential Holders."
"Board of Directors" or "Board" means the Board of Directors of the Fund or any duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other entity permitted by law to perform the functions required of a Broker-Dealer by the Auction Procedures, that has been selected by the Fund and has entered into a Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in The City of New York, New York are authorized or obligated by law to close.
"By-Laws" means the By-Laws of the Fund, as amended from time to time.
"Charter" means the Articles of Incorporation of the Fund, as amended or supplemented (including the Articles Supplementary), as filed with the State Department of Assessments and Taxation of the State of Maryland.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the shares of the Fund's common stock, par value $.001 per share.
"Cure Date" has the meaning set forth in paragraph 3(a)(i) of Article II of the Articles Supplementary for the Series D Preferred and paragraph 3(a)(ii) of Article I of the Articles Supplementary for the Series E Auction Rate Preferred.
"Date of Original Issue" means the date on which the Series D Preferred or Series E Auction Rate Preferred, as the case may be, is originally issued by the Fund.
"Default Period" has the meaning set forth in "Additional Information Concerning the Series D Preferred and Series E Auction Rate Preferred -- Dividends and Dividend Period."
"Default Rate" means the Reference Rate multiplied by three (3).
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S. Government Obligations. Except for determining whether the Fund has Eligible Assets with an Adjusted Value equal to or greater than the Basic Maintenance Amount, each Deposit Asset shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Asset but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made.
"Discount Factor" means (i) so long as Moody's is rating the Series D Preferred or Series E Auction Rate Preferred at the Fund's request, the Moody's Discount Factor, (ii) so long as S&P is rating the Series E Auction Rate Preferred, the S&P Discount Factor, and/or (iii) any applicable discount factor established by any Other Rating Agency, whichever is applicable.
"Discounted Value" means, as applicable, (i) the quotient of the Market Value of an Eligible Asset divided by the applicable Discount Factor, or (ii) such other formula for determining the discounted value of an Eligible Asset as may be established by an applicable Rating Agency, provided that with respect to an Eligible Asset that is currently callable, Discounted Value will be equal to the applicable quotient or product as calculated above or the call price, whichever is lower, and that with respect to an Eligible Asset that is prepayable, Discounted Value will be equal to the applicable quotient or product as calculated above or the par value, whichever is lower.
"Dividend Default" has the meaning set forth in "Additional Information Concerning the Series D Preferred and Series E Auction Rate Preferred -- Dividends and Dividend Period."
"Dividend Payment Date" means, with respect to the Series D Preferred, any date on which dividends declared by the Board of Directors thereon are payable pursuant to the provisions of paragraph 1(a) of Article II of the Articles Supplementary of the Series D Preferred, and, with respect to the Series E Auction Rate Preferred, any date on which dividends declared by the Board of Directors thereon are payable pursuant to the provisions of paragraph 2(b) of Article I of the Articles Supplementary, for the Series E Auction Rate Preferred, and shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Dividend Period" means, with respect to Series D Preferred, the quarterly dividend specified in paragraph 1(a) of Article II of the Articles Supplementary for the Series D Preferred and, with respect to Series E Auction Rate Preferred, the initial period determined in the manner set forth under "Designation" in the Articles Supplementary of the Series E Auction Rate Preferred, and thereafter, the period commencing on the Business Day following each Auction Date and ending on the next Auction Date or, if such next Auction Date is not immediately followed by a Business Day, on the latest day prior to the next succeeding Business Day.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then rating the Series D Preferred or Series E Auction Rate Preferred at the request of the Fund), S&P Eligible Assets (if S&P is then rating the Series E Auction Rate Preferred at the request of the Fund), and/or Other Rating Agency Eligible Assets if any Other Rating Agency is then rating the Series D Preferred or Series E Auction Rate Preferred, whichever is applicable.
"Existing Holder" means (i) a person who beneficially owns those shares of Series E Auction Rate Preferred listed in that person's name in the records of the Fund or the Auction Agent or (ii) the beneficial owner of those shares of Series E Auction Rate Preferred which are listed under such person's Broker- Dealer's name in the records of the Auction Agent, which Broker-Dealer will have signed a master purchaser's letter.
"Hold Order" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Orders By Existing Holders and Potential Holders."
"Holder" means, with respect to the Series E Auction Rate Preferred, the registered holder of Series E Auction Rate Preferred shares as the same appears on the stock ledger or stock records of the Fund or records of the Auction Agent, as the case may be.
"Industry Classification" means a six-digit industry classification in the Standard Industry Classification system published by the United States.
"Liquidation Preference" means $25 per share of Series D Preferred and $25,000 per share of Series E Auction Rate Preferred and will have a correlative meaning with respect to shares of any other class or series of Preferred Stock.
"Market Capitalization" means, with respect to any issue of common stock, as of any date, the product of (i) the number of shares of such common stock issued and outstanding as of the close of business on the date of determination thereof and (ii) the Market Value per share of such common stock as of the close of business on the date of determination thereof.
"Market Value" means the amount determined by the Fund with respect to specific Eligible Assets in accordance with valuation policies adopted from time to time by the Board of Directors as being in compliance with the requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the Fund with respect to any of its assets, mean the amount determined with respect to specific Eligible Assets of the Fund in the manner set forth below:
(i) as to any common or preferred stock which is an Eligible
Asset, (a) if the stock is traded on a national securities
exchange or quoted on the Nasdaq System, the last sales
price reported on the Valuation Date or (b) if there was no
reported sales price on the Valuation Date, the price
obtained from a Pricing Service as of the Valuation Date, or
(c) if there was no reported sales price on the Valuation
Date or price available from a Pricing Service, the lower of
two bid prices for such stock provided to the Administrator
by two recognized securities dealers with a minimum
capitalization of $25,000,000 (or otherwise approved for
such purpose by Moody's and S&P) at least one of which will
be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn
provided to the Fund by any such means by such
administrator, or, if two bid prices cannot be obtained,
such Eligible Asset will have a Market Value of zero;
(ii) as to any U.S. Government Obligation, Short-Term Money Market Instrument (other than demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements) and commercial paper, with a maturity of greater than 60 days, the product of (a) the principal amount (accreted principal to the extent such instrument accretes interest) of such instrument and (b) the price provided by a Pricing Service or, if not obtainable through a Pricing Service, the lower of the bid prices for the same kind of instruments having, as nearly as practicable, comparable interest rates and maturities provided by two recognized securities dealers having minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's and S&P) to the administrator, at least one of which will be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Fund by any such means by such administrator, or, if two bid prices cannot be obtained, such Eligible Asset will have a Market Value of zero;
(iii) as to cash, demand and timed deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements included in Short-Term Money Market Instruments, the face value thereof;
(iv) as to any U.S. Government Obligation, Short-Term Money Market Instrument or commercial paper with a maturity of 60 days or fewer, amortized cost unless the Board of Directors determines that such value does not constitute fair value; or
(v) as to any other evidence of indebtedness which is an
Eligible Asset, (a) the product of (1) the unpaid principal
balance of such indebtedness as of the Valuation Date and
(2)(A) if such indebtedness is traded on a national
securities exchange or quoted on the Nasdaq System, the last
sales price reported on the Valuation Date or (B) if there
was no reported sales price on the Valuation Date and if
such indebtedness is not traded on a national securities
exchange or quoted on the Nasdaq System, the price obtained
from a Pricing Service as of the Valuation Date or (C) if
there was no reported sales price on the Valuation Date or
if such indebtedness is not traded on a national securities
exchange or quoted on the Nasdaq System, and a price was not
obtainable from a Pricing Service as of the Valuation Date,
the lower of two bid prices for such indebtedness provided
by two recognized dealers with a minimum capitalization of
$25,000,000 (or otherwise approved for such purpose by
Moody's and S&P) to the administrator of the Fund's assets,
at least one of which will be provided in writing or by
telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar
means, and in turn provided to the Fund by any such means by
such administrator, plus (b) accrued interest on such
indebtedness.
Notwithstanding the foregoing, in the case of Preferred Stock that is rated by a single Rating Agency, "Market Value" shall have the meaning set forth in the Articles Supplementary of such Preferred Stock.
"Maximum Rate" means, on any date on which the Applicable Rate is determined, the applicable percentage of (i) in the case of a dividend period of 184 days or less, the "AA" Financial Composite Commercial Paper Rate on the date of such Auction determined as set forth below based on the lower of the credit ratings assigned to the Series E Auction Rate Preferred by Moody's and S&P subject to upward but not downward adjustment in the discretion of the Board of Directors after consultation with the Broker-Dealers; provided that immediately following any such increase the Fund would be in compliance with the Basic Maintenance Amount or (ii) in the case of a dividend period of longer than 184 days, the Treasury Index Rate.
Credit Ratings for Series E Auction Rate Preferred
Moody's Credit Rating S&P Credit Rating Applicable Percentage ---------------------- ----------------- --------------------- Aa3 or higher AA- or higher 150% A3 to A1 A- to A+ 175% Baa3 to Baa1 BBB- to BBB+ 250% Below Baa3 Below BBB- 275% |
"Moody's" means Moody's Investors Service, Inc. and its successors at law.
"Moody's Discount Factor" has the meaning ascribed to it in "Moody's and S&P Guidelines -- Moody's Guidelines."
"Moody's Eligible Assets" has the meaning ascribed to it in "Moody's and S&P Guidelines -- Moody's Guidelines."
"1940 Act" means the Investment Company Act of 1940, as amended, or any successor statute.
"1940 Act Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Fund which are stock, including all Outstanding shares of Series D Preferred and Series E Auction Rate Preferred (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its common stock), determined on the basis of values calculated as of a time within 48 hours (not including Saturdays, Sundays or holidays) next preceding the time of such determination.
"1940 Act Asset Coverage Certificate" means the certificate required to be delivered by the Fund pursuant to paragraph 9(a)(i)(B) of Article I of the Articles Supplementary of the Series E Auction Rate Preferred.
"Non-Call Period" means a period determined by the Board of Directors after consultation with the Broker-Dealers, during which the Series E Auction Rate Preferred subject to such Special Dividend Period are not subject to redemption at the option of the Fund but only to mandatory redemption.
"NRSRO" means a Nationally Recognized Statistical Ratings Organization.
"Order" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Orders By Existing Holders and Potential Holders."
"Other Rating Agency" means any rating agency other than Moody's or S&P then providing a rating for the Series E Auction Rate Preferred pursuant to the request of the Fund.
"Other Rating Agency Eligible Assets" means assets of the Fund designated by any Other Rating Agency as eligible for inclusion in calculating the discounted value of the Fund's assets in connection with such Other Rating Agency's rating of the Series E Auction Rate Preferred.
"Outstanding" means, as of any date, Preferred Stock theretofore issued by the
Fund except:
(i) any such share of Preferred Stock theretofore cancelled by
the Fund or delivered to the Fund for cancellation;
(ii) any such share of Preferred Stock other than auction rate
Preferred Stock as to which a notice of redemption will have
been given and for whose payment at the redemption thereof
Deposit Assets in the necessary amount are held by the Fund
in trust for, or have been irrevocably deposited with the
relevant disbursing agent for payment to, the holder of such
share pursuant to the Articles Supplementary with respect
thereto;
(iii) in the case of auction rate Preferred Stock, any such stock
theretofore delivered to the applicable auction agent for
cancellation or with respect to which the Fund has given
notice of redemption and irrevocably deposited with the
applicable paying agent sufficient funds to redeem such
shares; and
(iv) any such Preferred Stock in exchange for or in lieu of which
other shares have been issued and delivered.
|
Notwithstanding the foregoing, (x) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any Preferred Stock as to which the Fund or any subsidiary is the holder or Existing Holder, as applicable, will be disregarded and deemed not Outstanding; and (y) in connection with any auction, any auction rate Preferred Stock as to which the Fund or any Person known to the auction agent to be an subsidiary is the holder or Existing Holder, as applicable, will be disregarded and not deemed Outstanding.
"Paying Agent" means with respect to Series E Auction Rate Preferred, The Bank of New York unless and until another entity appointed by a resolution of the Board of Directors enters into an agreement with the Fund to serve as paying agent, which paying agent may be the same as the Auction Agent and, with respect to any other class or series of preferred stock, the Person appointed by the Fund as dividend disbursing or paying agent with respect to such class or series.
"Person"means and includes an individual, a partnership, the Fund, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
"Potential Beneficial Owner or Holder" means (i) any Existing Holder who may be interested in acquiring additional shares of Series E Auction Rate Preferred or (ii) any other person who may be interested in acquiring shares of Series E Auction Rate Preferred and who has signed a master purchaser's letter or whose shares will be listed under such person's Broker-Dealer's name on the records of the Auction Agent which Broker-Dealer will have executed a master purchaser's letter.
"Preferred Stock" means the preferred stock, par value $.001 per share, of the Fund, and includes the Series D Preferred and Series E Auction Rate Preferred.
"Premium Call Period" means a period consisting of a number of whole years as determined by the Board of Directors after consultation with the Broker-Dealers, during each year of which the shares subject to such Special Dividend Period will be redeemable at the Fund's option at a price per share equal to the Liquidation Preference plus accumulated but unpaid dividends (whether or not earned or declared) plus a premium expressed as a percentage or percentages of the Liquidation Preference or expressed as a formula using specified variables as determined by the Board of Directors after consultation with the Broker-Dealers.
"Pricing Service" means any of the following: Bloomberg Financial Service, Bridge Information Services, Data Resources Inc., FT Interactive, International Securities Market Association, Merrill Lynch Securities Pricing Service, Muller Data Corp., Reuters, S&P/J.J. Kenny, Telerate, Trepp Pricing and Wood Gundy.
"Rating Agency" means Moody's and S&P as long as such rating agency is then rating the Series D Preferred or the Series E Auction Rate Preferred at the request of the Fund, or any other rating agency then rating the Series D Preferred or the Series E Auction Rate Preferred at the request of the Fund.
"Rating Agency Guidelines" has the meaning set forth in set forth in "Moody's and S&P Guidelines."
"Redemption Date" means, with respect to shares of the Fund's Outstanding Preferred Stock, the date fixed by the Fund for the redemption of such shares.
"Redemption Default" has the meaning set forth in "Additional Information Concerning the Series D Preferred and Series E Auction Rate Preferred -- Dividends and Dividend Period."
"Redemption Price" means, with respect to the Series D Preferred, the price set forth in paragraph 3(a) of Article II of the Articles Supplementary for the Series D Preferred and, with respect to the Series E Auction Rate Preferred, the price set forth in paragraph 3(a)(i) of Article I of the Articles Supplementary for the Series E Auction Rate Preferred.
"Reference Rate" means, with respect to the determination of the Default Rate, the applicable "AA" Financial Composite Commercial Paper Rate for a Dividend Period of 184 days or fewer or the applicable Treasury Index Rate for a Dividend Period of longer than 184 days and, with respect to the determination of the Maximum Rate, the "AA" Financial Composite Commercial Paper Rate or the Treasury Index Rate, as appropriate.
"S&P" means Standard & Poor's Ratings Services, or its successors at law.
"S&P Discount Factor" has the meaning set forth in "Moody's and S&P Guidelines -- S&P Guidelines."
"S&P Eligible Assets" has the meaning set forth in "Moody's and S&P Guidelines -- S&P Guidelines."
"S&P Hedging Transactions" has the meaning set forth in "Moody's and S&P Guidelines -- S&P Guidelines"
"SEC" means the United States Securities and Exchange Commission
"Securities Act" means The Securities Act of 1933, as amended, or any successor statute.
"Securities Depository" means The Depository Trust Company and its successors and assigns or any successor securities depository selected by the Fund that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of Series D Preferred or Series E Auction Rate Preferred.
"Sell Order" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Orders by Existing Holders and Potential Holders."
"Series B Preferred" means the Fund's 7.20% Cumulative Preferred Stock, $.001 par value per share and liquidation preference $25 per share.
"Series C Auction Rate Preferred" means the Fund's Series C Auction Rate Cumulative Preferred Stock.
"Series D Preferred" means the Fund's Series D Cumulative Preferred Stock, $.001 par value per share and liquidation preference $25 per share.
"Series E Auction Rate Preferred" means the Fund's Series E Auction Rate Cumulative Preferred Stock, $.001 par value per share and liquidation preference $25,000 per share.
"Series E Auction Rate Preferred Basic Maintenance Amount Test" means a test which is met if the lower of the aggregate Discounted Values of the Moody's Eligible Assets or the S&P Eligible Assets if both Moody's and S&P are then rating the Series E Auction Rate Preferred at the request of the Fund, or the Eligible Assets of whichever of Moody's or S&P is then doing so if only one of Moody's or S&P is then rating the Series E Auction Rate Preferred at the request of the Fund, meets or exceeds the Basic Maintenance Amount with respect to the Series E Auction Rate Preferred.
"Short-Term Money Market Instrument" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Fund, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in 30 days, or A-1+ if such commercial paper matures in over 30 days;
(ii) AAAm rated money market funds
(iii) demand or time deposits in, and banker's acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (B) a United States branch
office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia) or (C) A-1+ rated institutions;
(iv) overnight funds; and
(v) U.S. Government Obligations.
Notwithstanding the foregoing, in the case of Preferred Stock that is rated by a single Rating Agency, "Short-Term Money Market Instruments" shall have the meaning set forth in the Articles Supplementary of such Preferred Stock.
"Special Dividend Period" means a Dividend Period that is not a Standard Dividend Period.
"Specific Redemption Provisions" means, with respect to any Special Dividend Period of more than one year, either, or any combination of (i) a Non-Call Period and (ii) a Premium Call Period.
"Standard Dividend Period" means a Dividend Period of seven days, subject to increase or decrease to the extent necessary for the next Auction Date and Dividend Payment Date to each be Business Days.
"Submission Deadline" means 1:30 p.m., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.
"Submitted Bid" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Bid Order" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Hold Order" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Order" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Sell Order" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Sufficient Clearing Bids" has the meaning set forth in "Additional Information Concerning the Auction for Series E Auction Rate Preferred -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Sufficient Clearing Orders" means that all shares of Series E Auction Rate Preferred are the subject of Submitted Hold Orders or that the number of shares of Series E Auction Rate Preferred that are the subject of Submitted Bids by Potential Holders specifying one or more rates equal to or less than the Maximum Rate exceeds or equals the sum of (i) the number of shares of Series E Auction Rate Preferred that are subject of Submitted Bids by Existing Holders specifying one or more rates higher than the Maximum Rate and (ii) the number of shares of Series E Auction Rate Preferred that are subject to Submitted Sell Orders.
"Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable Dividend Period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all Dividend Periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, if the most recent such statistical release will not have been published during the 15 days preceding the date of computation, the foregoing computations will be based upon the average of comparable data as quoted to the Fund by at least three recognized dealers in U.S. Government Obligations selected by the Fund.
"U.S. Government Obligations" means direct obligations of the United States or by its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption.
"Valuation Date" means the last Business Day of each week, or such other date as the Fund and Rating Agencies may agree to for purposes of determining the Basic Maintenance Amount. Notwithstanding the foregoing, in the case of Preferred Stock that is rated by a single Rating Agency, "Valuation Date" shall have the meaning set forth in the Articles Supplementary of such Preferred Stock.
"Winning Bid Rate" means the lowest rate specified in the Submitted Bids which if:
(i) (a) each such Submitted Bid of Existing Holders specifying such lowest rate and
(b) all other such Submitted Bids of Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of such series that are subject to such Submitted Bids; and
(ii) (a) each such Submitted Bid of Potential Holders specifying such lowest rate and
(b) all other such Submitted Bids of Potential Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (i) above continuing to hold an aggregate number of shares of Outstanding Series E Auction Rate Preferred which, when added to the number of shares of Outstanding Series E Auction Rate Preferred to be purchased by such Potential Holders described in subclause (ii) above, would equal not less than the Available shares of Series E Auction Rate Preferred.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
(a) Financial Statements (audited) for the fiscal year 2002 (1)
(i) Portfolio of Investments as of December 31, 2002
(ii) Statement of Assets and Liabilities as of December 31, 2002
(iii) Statement of Operations for the year ended December 31, 2002
(iv) Statement of Changes in Net Assets for the year ended December 31, 2002
(v) Financial highlights for a share outstanding throughout the periods 1994 through 2002
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
(2) Exhibits
(a) (i) Articles of Incorporation (2)
(ii) Articles Supplementary for the 7.20% Tax Advantaged Cumulative Preferred Stock (3)
(iii) Articles Supplementary for the Series C Auction Rate Cumulative Preferred Stock (5)
(iv) Form of Articles Supplementary for the __% Series D Cumulative Preferred Stock (10)
(v) Form of Articles Supplementary for the Series E Auction Rate Cumulative Preferred Stock (10)
(b) Amended and Restated By-Laws of Registrant (3)
(c) Not applicable
(d) (i) Specimen Stock Certificate:
(A) 7.20% Tax Advantaged Series B Cumulative Preferred Stock (3)
(B) Series C Auction Rate Cumulative Preferred Stock (5)
(C) ___% Series D Cumulative Preferred Stock (10)
(D) Series E Auction Rate Cumulative Preferred Stock (10)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan of Registrant (2)
(f) Not applicable
(g) Investment Advisory Agreement between Registrant and Gabelli Funds, LLC (6)
(h) Form of Underwriting Agreement (9)
(i) Not applicable
(j) Custodian Contract between Registrant and State Street Bank and Trust Company (9)
(k) (i) Registrar, Transfer Agency and Service Agreement between Registrant and EquiServe Trust Company (6)
(ii) Transfer Agent and Registrar Services Fee Agreement (6)
(iii) Form of Auction Agency Agreement for the Series C Auction Rate Cumulative Preferred Stock (5)
(iv) Form of Auction Agency Agreement for the Series E Auction Rate Preferred Stock (10)
(v) Form of Broker-Dealer Agreement for the Series C Auction Rate Cumulative Preferred Stock (5)
(vi) Form of Broker-Dealer Agreement for the Series E Auction Rate Cumulative Preferred Stock (10)
(vii) Form of DTC Agreement (10)
(1) Opinion and Consent of Miles & Stockbridge (9)
(m) Not applicable
(n) (i) Consent of independent accountant (10)
(ii) Powers of Attorney (7)
(o) Not applicable
(p) Not applicable
(q) Not Applicable
(r) Codes of Ethics of the Fund and the Adviser (4)
(1) Incorporated by reference to the Fund's annual report filed on March 10, 2003.
(2) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 2 to the Fund's Registration Statement on Form N-2 Nos. 333-45951 and 811-4700; as filed with the Securities and Exchange Commission on February 10, 1998.
(3) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 1 to the Fund's Registration Statement on Form N-2 Nos. 333-47012 and 811-4700; as filed with the Securities and Exchange Commission on June 11, 2001.
(4) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 2 to the Fund's Registration Statement on Form N-2 Nos. 333-62323 and 811-4700; as filed with the Securities and Exchange Commission on December 12, 2000.
(5) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 3 to the Fund's Registration Statement on Form N-2 Nos. 333-86554 and 811-4700; as filed with the Securities and Exchange Commission on June 25, 2002.
(6) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 1 to the Fund's Registration Statement on Form N-2 Nos. 333-62323 and 811-4700; as filed with the Securities and Exchange Commission on October 13, 1995.
(7) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 1 to the Fund's Registration Statement on Form N-2 Nos. 333-86554 and 811-4700; as filed with the Securities and Exchange Commission on June 4, 2002.
(8) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 2 to the Fund's Registration Statement on Form N-2 Nos. 333-47012 and 811-4700; as filed with the Securities and Exchange Commission on June 18, 2002.
(9) To be filed by amendment.
(10) Filed herewith.
Item 25. Marketing Arrangements
See Exhibit 2(h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
Series D Series E
Preferred Auction Rate
--------- ------------
SEC registration fees ............................................... $ 6,068 $ 4,045
New York Stock Exchange listing fee .................................. 36,900 n/a
Rating Agency Fees ................................................... 25,000 25,000
Printing and engraving expenses ...................................... 50,000 50,000
Auditing fees and expenses ........................................... 25,000 25,000
Legal fees and expenses .............................................. 75,000 75,000
Blue Sky fees and expenses ........................................... 20,000 20,000
Miscellaneous......................................................... 12,032
------- -------
Total........................................................ $250,000 $240,000
|
Item 27. Persons Controlled by or Under Common Control with Registrant
NONE
Item 28. Number of Holders of Securities as of December 31, 2002
Number of Record
Title of Class Holders
-------------- -------
Common Stock, par value $.001 per share 80,063
7.25% Cumulative Preferred Stock,
par value $.001 per share 8,597
7.20% Cumulative Preferred Stock,
par value $.001 per share 8,435
Series C Auction Rate Cumulative Preferred
Stock, par value $.001 per share 1
|
Item 29. Indemnification
The response of this Item is incorporated by reference to the caption "Limitation of Officers' and Directors Liability" in the Part B of this Registration Statement.
Insofar as indemnification for liability arising under the Securities Act may be permitted to directors, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered. Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
The Investment Adviser, a limited liability company organized under the laws of the State of New York, acts as investment adviser to the Registrant. The Registrant is fulfilling the requirement of this Item
30 to provide a list of the officers and directors of the Investment Adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the Investment Adviser or those officers and directors during the past two years, by incorporating by reference the information contained in the Form ADV of the Investment Adviser filed with the commission pursuant to the Investment Advisers Act of 1940 (Commission File No. 801-26202).
Item 31. Location of Accounts and Records
The accounts and records of the Registrant are maintained in part at the office of the Investment Adviser at One Corporate Center, Rye, New York 10580-1422, in part at the offices of the Custodian, Boston Safe Deposit and Trust Company, One Boston Place, Boston, Massachusetts 02108, at the offices of the Fund's Administrator, PFPC, Inc, 3200 Horizon Drive, King of Prussia, Pennsylvania 19406, and in part at the offices of EquiServe Trust Company, N.A., PO Box 43025, Providence, RI 02940-3025.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
1. Registrant undertakes to suspend the offering of shares until the prospectus is amended, if subsequent to the effective date of this registration statement, its net asset value declines more than ten percent from its net asset value, as of the effective date of the registration statement or its net asset value increases to an amount greater than its net proceeds as stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424 (b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
2. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
3. The undersigned registrant hereby undertakes to supplement the prospectus, after expiration of the subscription period, to set forth the results of the subscription offer, and the terms of any subsequent raftering thereof.
5. 1. Registrant undertakes that, for the purpose of determining any liability under the Securities Act the information omitted from the form of prospectus filed as part of the Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 497(h) will be deemed to be a part of the Registration Statement as of the time it was declared effective.
2. Registrant undertakes that, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus will be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
6. Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information constituting Part B of this Registration Statement.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of 1940, this Registrant's Registration Statement has been signed on behalf of the Registrant, in the City of Rye, State of New York, on the 30th day of September, 2003.
THE GABELLI EQUITY TRUST INC.
By: /s/ Bruce N. Alpert
------------------------
Bruce N. Alpert
President
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities set forth below on the 30th day of September, 2003.
Signature Title
* Director, Chairman and Chief
------------------------------------ Investment Officer
Mario J. Gabelli
* Director
------------------------------------
Thomas E. Bratter
* Director
------------------------------------
Anthony J. Colavita
* Director
------------------------------------
James P. Conn
* Director
------------------------------------
Frank J. Fahrenkopf, Jr.
* Director
------------------------------------
Arthur V. Ferrara
* Director
------------------------------------
Karl Otto Pohl
* Director
------------------------------------
Anthony R. Pustorino
* Director
------------------------------------
Salvatore J. Zizza
/s/ Bruce N. Alpert President
-----------------------------------
Bruce N. Alpert
Attorney-in-Fact
|
* Pursuant to a Power of Attorney.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99 (a) (i) Articles of Incorporation*
EX-99 (a) (ii) Articles Supplementary relating to the
7.20% Cumulative Preferred Stock*
EX-99 (a) (iii) Articles Supplementary relating to the
Series C Auction Rate Cumulative Preferred Stock*
EX-99 (a) (iv) Form of Articles Supplementary relating
to the __% Series D Cumulative Preferred Stock
EX-99 (a) (v) Form of Articles Supplementary relating
to the Series E Auction Rate
Cumulative Preferred
EX-99 (b) Amended and Restated By-Laws*
EX-99 (d) (i) (A) Specimen Stock Certificate, 7.20% Tax Advantaged
Cumulative Preferred Stock*
EX-99 (d) (i) (B) Specimen Stock Certificate, Series C Auction Rate
Preferred Cumulative Preferred Stock*
EX-99 (d) (i) (C) Specimen Stock Certificate, __% Series D
Cumulative Preferred Stock
EX-99 (d) (i) (D) Specimen Stock Certificate, Series E Auction Rate
Cumulative Preferred Stock
EX-99 (e) Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan*
EX-99 (g) Investment Advisory Agreement between Registrant
and Gabelli Funds, LLC*
EX-99 (h) Form of Underwriting Agreement**
EX-99 (j) Custodian Agreement between Registrant and State
Street Bank and Trust Company*
EX-99 (k) (i) Registrar, Transfer Agency and Service Agreement
between Registrant and EquiServe Trust Company*
EX-99 (k) (ii) Form of Auction Agency Agreement
|
EX-99 (k) (iii) Form of Broker-Dealer Agreement EX-99 (k) (iv) Form of DTC Agreement EX-99 (1) Opinion and Consent of Miles & Stockbridge** EX-99 (n) (i) Consent of PricewaterhouseCoopers LLP EX-99 (n) (ii) Powers of Attorney* EX-99 (r) Code of Ethics* |
*Previously filed and incorporated by reference.
**To be filed by Amendment
Exhibit 99(a)(iv)
THE GABELLI EQUITY TRUST INC.
ARTICLES SUPPLEMENTARY
CREATING AND FIXING THE RIGHTS OF
[__]% SERIES D CUMULATIVE PREFERRED STOCK
The Gabelli Equity Trust Inc., a Maryland corporation, having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of the State of Maryland that:
FIRST: The Board of Directors of the Corporation, at a meeting duly convened and held on May 14, 2003, pursuant to authority expressly vested in it by Article V of the Charter of the Corporation, adopted resolutions reclassifying 2,000,000 shares of authorized but unissued common stock as preferred stock of the Fund, par value $.001 per share, and authorizing the issuance and designation of up to 6,006,000 shares of preferred stock as "[__]% Series D Cumulative Preferred Stock" at such times as the Pricing Committee should determine.
SECOND: The Pricing Committee, at a meeting duly convened and held on
[__], 2003, pursuant to authority granted it by the Board of Directors of the
Corporation at its May 14, 2003 meeting, approved the issuance by the
Corporation of [__] shares of [__]% Series D Cumulative Preferred Stock.
THIRD: The preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the [__]% Series D Cumulative Preferred Stock, par value $.001 per share, as set by the Board of Directors are as follows:
ARTICLE I
DEFINITIONS
Unless the context or use indicates another or different meaning or intent, each of the following terms when used in these Articles Supplementary shall have the meaning ascribed to it below, whether such term is used in the singular or plural and regardless of tense:
"Accountant's Confirmation" means a letter from an Independent Accountant delivered to Moody's with respect to certain Basic Maintenance Reports substantially to the effect that:
(a) the Independent Accountant has read the Basic Maintenance Report or Reports prepared by the Administrator during the referenced calendar year that are referred to in such letter;
(b) with respect to the issue size compliance, issuer diversification and industry diversification calculations, such calculations and the resulting Market Value of the Moody's Eligible Assets included in the Reports and the Adjusted Value of the Moody's Eligible Assets included in the Reports are numerically correct;
(c) with respect to the excess or deficiency of the Adjusted Value of the Moody's Eligible Assets included in the Reports when compared to the Basic Maintenance Amount calculated for Moody's, the results of the calculation set forth in the Reports have been recalculated and are numerically correct;
(d) with respect to the Moody's and S&P ratings on corporate evidences of indebtedness, convertible corporate evidences of indebtedness and preferred stock listed in the Reports, that information has been traced and agrees with the information provided directly or indirectly by the respective rating agencies (in the event such information does not agree or such information is not listed in the accounting records of the Corporation, the Independent Accountants will inquire of the rating agencies what such information is and provide a listing in their letter of such differences, if any);
(e) with respect to issuer name and coupon or dividend rate listed in the Reports, that information has been traced and agrees with information listed in the accounting records of the Corporation;
(f) with respect to issue size listed in the Reports, that information has been traced and agrees with information provided by a Pricing Service or such other services as Moody's may authorize from time to time;
(g) with respect to the prices (or alternative permissible factors used in calculating the Market Value as provided by these Articles Supplementary) provided by the Administrator of the Corporation's assets for purposes of valuing securities in the portfolio, the Independent Accountant has traced the price used in the Reports to the price provided by such Administrator (in accordance with the procedures provided in these Articles Supplementary) and verified that such information agrees (in the event such information does not agree, the Independent Accountants will provide a listing in their letter of such differences); and
(h) with respect to the description of each security included in the Reports, the description of Moody's Eligible Assets has been compared to the definition of Moody's Eligible Assets contained in these Articles Supplementary, and the description as appearing in the Reports agrees with the definition of Moody's Eligible Assets as described in these Articles Supplementary.
Each such letter may state that: (i) such Independent Accountant has made no independent verification of the accuracy of the description of the investment securities listed in the Reports or the Market Value of those securities nor has it performed any procedures other than those specifically outlined above for the purposes of issuing such letter; (ii) unless otherwise stated in the letter, the procedures specified therein were limited to a comparison of numbers or a verification of specified computations applicable to numbers appearing in the Reports and the schedule(s) thereto; (iii) the foregoing procedures do not constitute an examination in accordance with generally accepted auditing standards and the Reports contained in the letter do not extend to any of the Corporation's financial statements taken as a whole; (iv) such Independent Accountant does not express an opinion as to whether such procedures would enable such Independent Accountant to determine that the methods followed in the preparation of the Reports would correctly determine the Market Value or Discounted Value of the investment portfolio; and (v) accordingly, such Independent Accountant expresses no opinion as to the information set forth in the Reports or in the schedule(s) thereto and makes no representation as to the sufficiency of the procedures performed for the purposes of these Articles Supplementary.
Such letter shall also state that the Independent Accountant is an "independent accountant" with respect to the Corporation within the meaning of the Securities Act of 1933, as amended, and the related published rules and regulations thereunder.
"Adjusted Value" of each Moody's Eligible Asset shall be computed as follows:
(a) cash shall be valued at 100% of the face value thereof; and
(b) all other Moody's Eligible Assets shall be valued at the Discounted Value thereof; and
(c) each asset that is not a Moody's Eligible Asset shall be valued at zero.
"Administrator" means the other party to the Administration Agreement with the Corporation, which shall initially be Gabelli Funds, LLC, a New York limited liability company, and will include, as appropriate, any sub-administrator appointed by the Administrator.
"ADRs" means U.S. dollar-denominated American Depository Receipts.
"Adviser" means Gabelli Funds, LLC, a New York limited liability company, or such other person as shall be serving as the investment adviser of the Corporation.
"Annual Valuation Date" means the Valuation Date each calendar year so designated by the Corporation, commencing in the calendar year 2003.
"Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Corporation which are stock, including all Outstanding shares of Series D Preferred Stock (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its common stock), determined on the basis of values calculated as of a time within 48 hours (not including Saturdays, Sundays or holidays) next preceding the time of such determination.
"Basic Maintenance Amount" means, as of any Valuation Date, the
dollar amount equal to (a) the sum of (i) the product of the number of shares
of each class or series of Preferred Stock Outstanding on such Valuation Date
multiplied by the Liquidation Preference per share; (ii) to the extent not
included in (i) the aggregate amount of cash dividends (whether or not earned
or declared) that will have accumulated for each Outstanding share of
Preferred Stock from the most recent Dividend Payment Date to which dividends
have been paid or duly provided for (or, in the event the Basic Maintenance
Amount is calculated on a date prior to the initial Dividend Payment Date with
respect to a class or series of the Preferred Stock, then from the Date of
Original Issue) through the Valuation Date plus all dividends to accumulate on
the Preferred Stock then Outstanding during the 70 days following such
Valuation Date or, if less, during the number of days following such Valuation
Date that shares of Preferred Stock called for redemption are scheduled to
remain Outstanding; (iii) the Corporation's other liabilities due and payable
as of such Valuation Date (except that dividends and other distributions
payable by the Corporation on Common Stock shall not be included as a
liability) and such liabilities projected to become due and payable by the
Corporation during the 90 days following such Valuation Date (excluding
liabilities for investments to be purchased and for dividends and other
distributions not declared as of such Valuation Date); and (iv) any current
liabilities of the Corporation as of such Valuation Date to the extent not
reflected in (or specifically excluded by) any of (a)(i) through (a)(iii)
(including, without limitation, and immediately upon determination, any
amounts due and payable by the Corporation pursuant to reverse repurchase
agreements and any payables for assets purchased as of such Valuation Date)
less (b)(i) the Adjusted Value of any of the Corporation's assets or (ii) the
face value of any of the Corporation's assets if, in the case of both (b)(i)
and (b)(ii), such assets are either cash or evidences of indebtedness which
mature prior to or on the date of redemption or repurchase of shares of
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or evidences of indebtedness which have a rating assigned by
Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+
or A-1+, and are irrevocably held by the Corporation's custodian bank in a
segregated account or deposited by the Corporation with the
Dividend-Disbursing Agent for the payment of the amounts needed to redeem or
repurchase Preferred Stock subject to redemption or repurchase or any of
(a)(ii) through (a)(iv); and provided that in the event the Corporation has
repurchased Preferred Stock and irrevocably segregated or deposited assets as
described above with its custodian bank or the Dividend-Disbursing Agent for
the payment of the repurchase price the Corporation may deduct 100% of the
Liquidation Preference of such Preferred Stock to be repurchased from (a)
above. Basic Maintenance Amount shall, for purposes of these Articles
Supplementary, have a correlative meaning with respect to any other class or
series of Preferred Stock.
"Basic Maintenance Amount Cure Date" means, with respect to the Series D Preferred Stock, 10 Business Days following a Valuation Date, such date being the last day upon which the Corporation's failure to comply with paragraph 5(a)(ii)(A) of Article II hereof could be cured, and for the purposes of these Articles Supplementary shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Basic Maintenance Report" or "Report" means, with respect to the Series D Preferred Stock, a report prepared by the Administrator which sets forth, as of the related Valuation Date, Moody's Eligible Assets sufficient to meet or exceed the Basic Maintenance Amount, the Market Value and Discounted Value thereof (seriatim and in the aggregate), and the Basic Maintenance Amount, and for the purposes of these Articles Supplementary shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Board of Directors" means the Board of Directors of the Corporation or any duly authorized committee thereof as permitted by applicable law.
"Business Day" means a day on which the New York Stock Exchange is open for trading and that is neither a Saturday, Sunday nor any other day on which banks in The City of New York, New York are authorized by law to close.
"Charter" means the Articles of Incorporation of the Corporation, as amended, supplemented (including these Articles Supplementary), as filed with the State Department of Assessments and Taxation of the State of Maryland.
"Common Stock" means the Common Stock, par value $.001 per share, of the Corporation.
"Corporation" means The Gabelli Equity Trust Inc., a Maryland corporation.
"Cure Date" shall have the meaning set forth in paragraph 3(a)(i) of Article II hereof.
"Date of Original Issue" means [__], 2003, and for the purposes of these Articles Supplementary shall mean with respect to any other class or series of Preferred Stock the date upon which shares of such class or series are first issued.
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S. Government Obligations. Except for determining whether the Corporation has Moody's Eligible Assets with an Adjusted Value equal to or greater than the Basic Maintenance Amount, each Deposit Asset shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Asset but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made.
"Discounted Value" means, as applicable, (a) the quotient of the
Market Value of an Eligible Asset divided by the applicable Discount Factor or
(b) such other formula for determining the discounted value of an Eligible
Asset as may be established by an applicable rating agency, provided, in
either case that with respect to an Eligible Asset that is currently callable,
Discounted Value will be equal to the applicable quotient or product as
calculated above or the call price, whichever is lower, and that with respect
to an Eligible Asset that is prepayable, Discounted Value will be equal to the
applicable quotient or product as calculated above or the par value, whichever
is lower
"Dividend-Disbursing Agent" means, with respect to the Series D Preferred Stock, EquiServe Trust Company, N.A. and its successors or any other dividend-disbursing agent appointed by the Corporation and, with respect to any other class or series of Preferred Stock, the Person appointed by the Corporation as dividend-disbursing or paying agent with respect to such class or series.
"Dividend Payment Date" means with respect to the Series D Preferred Stock, any date on which dividends declared by the Board of Directors thereon are payable pursuant to the provisions of paragraph 2(a) of Article II of these Articles Supplementary and shall for the purposes of these Articles Supplementary have a correlative meaning with respect to any other class or series of Preferred Stock.
"Dividend Period" shall have the meaning set forth in paragraph 2(a) of Article II hereof, and for the purposes of these Articles Supplementary shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is with respect to the Corporation an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended.
"Liquidation Preference" shall, with respect to the Series D Preferred Stock, have the meaning set forth in paragraph 3(a) of Article II hereof, and for the purposes of these Articles Supplementary shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Market Value" means the amount determined by the Corporation with respect to Moody's Eligible Assets in accordance with valuation policies adopted from time to time by the Board of Directors as being in compliance with the requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the Corporation with respect to any of its assets, mean the amount determined with respect to specific Moody's Eligible Assets of the Corporation in the manner set forth below:
(a) as to any common or preferred stock which is a Moody's Eligible Asset, (i) if the stock is traded on a national securities exchange or quoted on the Nasdaq System, the last sales price reported on the Valuation Date or (ii) if there was no reported sales price on the Valuation Date, the lower of two bid prices for such stock provided to the Administrator by two recognized securities dealers with minimum capitalizations of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect Moody's then-current rating of the Series D Preferred Stock), at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such Administrator, or, if two bid prices cannot be obtained, such Moody's Eligible Asset shall have a Market Value of zero;
(b) as to any U.S. Government Obligation, Short Term Money Market Instrument (other than demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements) and commercial paper with a maturity of greater than 60 days, the product of (i) the principal amount (accreted principal to the extent such instrument accretes interest) of such instrument, and (ii) the lower of the bid prices for the same kind of instruments having, as nearly as practicable, comparable interest rates and maturities provided by two recognized securities dealers having a minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one such dealer and any other source (provided that the utilization of such source would not adversely affect Moody's then-current rating of the Series D Preferred Stock) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such Administrator, or, if two bid prices cannot be obtained, such Moody's Eligible Asset will have a Market Value of zero;
(c) as to cash, demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements included in Short-Term Money Market Instruments, the face value thereof;
(d) as to any U.S. Government Obligation, Short-Term Money Market Instrument or commercial paper with a maturity of 60 days or fewer, amortized cost unless the Board of Directors determines that such value does not constitute fair value; and
(e) as to any other evidence of indebtedness which is a Moody's Eligible Asset, (i) the product of (A) the unpaid principal balance of such indebtedness as of the Valuation Date and (B)(1) if such indebtedness is traded on a national securities exchange or quoted on the Nasdaq System, the last sales price reported on the Valuation Date or (2) if there was no reported sales price on the Valuation Date or if such indebtedness is not traded on a national securities exchange or quoted on the Nasdaq System, the lower of two bid prices for such indebtedness provided by two recognized dealers with a minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one such dealer and any other source (provided that the utilization of such source would not adversely affect Moody's then-current rating of the Series D Preferred Stock) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such Administrator, plus (ii) accrued interest on such indebtedness.
"Moody's" means Moody's Investors Service, Inc., or its successors at law. In the event that Moody's is no longer rating the Series D Preferred Stock at the request of the Corporation, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Corporation.
"Moody's Discount Factor" means, with respect to a Moody's Eligible Asset specified below, the following applicable number:
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------ ---------------
Short Term Money Market Instruments (other than U.S. Government
Obligations set forth below) and other commercial paper:
U.S. Treasury Securities with final maturities that are less than or
equal to 60 days................................................. 1.00
Demand or time deposits, certificates of deposit and bankers'
acceptances includible in Short Term Money Market Instruments.... 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or less 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30 days
but in 270 days or less.......................................... 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less.. 1.25
Repurchase obligations includible in Short Term Money Market
Instruments if term is less than 30 days and counterparty is rated
at least A2...................................................... 1.00
Other repurchase obligations..................................... Discount Factor applicable to
underlying assets
U.S. Common Stocks and Common Stocks of foreign issuers for which
ADR's are traded
Utility............................... 1.70
Industrial............................ 2.64
Financial............................. 2.41
Transportation........................ 3.40
Common Stocks of foreign issuers (in existence for at least five
years) for which no ADR's are traded............................. 4.00
Convertible Preferred Stocks..................................... 3.00
Preferred stocks:
Auction rate preferred stocks
Cumulative............................................ 3.50
Non-Cumulative........................................ 3.60
Other preferred stocks issued by issuers in the financial and
industrial industries
Cumulative............................................ 1.97
Non-Cumulative........................................ 2.07
Other preferred stocks issued by issuers in the utilities
industry
Cumulative............................................ 1.55
Non-Cumulative........................................ 1.65
U.S. Government Obligations (other than U.S. Treasury Securities
Strips set forth below) with remaining terms to maturity of:
1 year or less.............................................. 1.04
2 years or less............................................. 1.09
3 years or less............................................. 1.12
4 years or less............................................. 1.15
5 years or less............................................. 1.18
7 years of less............................................. 1.21
10 years or less............................................ 1.24
15 years or less............................................ 1.25
20 years or less............................................ 1.26
30 years or less............................................ 1.26
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less.............................................. 1.04
2 years or less............................................. 1.10
3 years or less............................................. 1.14
4 years or less............................................. 1.18
5 years or less............................................. 1.21
7 years or less............................................. 1.27
10 years or less............................................ 1.34
15 years or less............................................ 1.45
20 years or less............................................ 1.54
30 years or less............................................ 1.66
Corporate Debt:
Non-convertible corporate debt rated at least Aaa1 with remaining
terms to maturity of:
1 year or less.............................................. 1.09
2 years or less............................................. 1.15
3 years or less............................................. 1.20
4 years or less............................................. 1.26
5 years or less............................................. 1.32
7 years or less............................................. 1.39
10 years or less............................................ 1.45
15 years or less............................................ 1.50
20 years or less............................................ 1.50
30 years or less............................................ 1.50
Non-convertible corporate debt rated at least Aa3 with remaining
terms to maturity of:
1 year or less.............................................. 1.12
2 years of less............................................. 1.18
3 years or less............................................. 1.23
4 years or less............................................. 1.29
years or less.............................................. 1.35
7 years or less............................................. 1.43
10 years or less............................................ 1.50
15 years or less............................................ 1.55
20 years or less............................................ 1.55
30 years or less............................................ 1.55
Non-convertible corporate debt rated at least A3 with remaining
terms to maturity of:
1 year or less.............................................. 1.15
2 years or less............................................. 1.22
3 years or less............................................. 1.27
4 years or less............................................. 1.33
5 years or less............................................. 1.39
7 years or less............................................. 1.47
10 years or less............................................ 1.55
15 years or less............................................ 1.60
20 years or less............................................ 1.60
30 years or less............................................ 1.60
Non-convertible corporate debt rated at least Baa3 with remaining
terms of maturity of:
1 year or less.............................................. 1.18
2 years or less............................................. 1.25
3 years or less............................................. 1.31
4 years or less............................................. 1.38
5 years or less............................................. 1.44
7 years or less............................................. 1.52
10 years or less............................................ 1.60
15 years or less............................................ 1.65
20 years or less............................................ 1.65
30 years or less............................................ 1.65
Non-convertible corporate debt rated at least Ba3 with remaining
terms of maturity of:
1 year or less.............................................. 1.37
2 years or less............................................. 1.46
3 years or less............................................. 1.53
4 years or less............................................. 1.61
5 years or less............................................. 1.68
7 years or less............................................. 1.79
10 years or less............................................ 1.89
15 years or less............................................ 1.96
20 years or less............................................ 1.96
30 years or less............................................ 1.96
Non-convertible corporate debt rated at least B1 and B2 with
remaining terms of maturity of:
1 year or less.............................................. 1.50
2 years or less............................................. 1.60
3 years or less............................................. 1.68
4 years or less............................................. 1.76
5 years or less............................................. 1.85
7 years or less............................................. 1.97
10 years or less............................................ 2.08
15 years or less............................................ 2.16
20 years or less............................................ 2.28
30 years or less............................................ 2.29
Convertible corporate debt securities rated at least Aa3 issued
by the following type of issuers:
Utility..................................................... 1.67
Industrial.................................................. 2.61
Financial................................................... 2.38
Transportation.............................................. 2.65
Convertible corporate debt securities rated at least A3 issued by
the following type of issuers:
Utility..................................................... 1.72
Industrial.................................................. 2.66
Financial................................................... 2.43
Transportation.............................................. 2.75
Convertible corporate debt securities rated at least Baa3 issued
by the following type of issuers:
Utility..................................................... 1.88
Industrial.................................................. 2.82
Financial................................................... 2.59
Transportation.............................................. 2.85
Convertible corporate debt securities rated at least Ba3 issued
by the following type of issuers:
Utility..................................................... 1.95
Industrial.................................................. 2.90
Financial................................................... 2.65
Transportation.............................................. 2.90
Convertible corporate debt securities rated at least B2 issued by
the following type of issuers:
Utility..................................................... 1.98
Industrial.................................................. 2.93
Financial................................................... 2.70
Transportation.............................................. 2.95
|
"Moody's Eligible Assets" means:
(a) cash (including, for this purpose, receivables for investments sold to a counterparty whose senior debt securities are rated at least Baa3 by Moody's or a counterparty approved by Moody's and payable within five Business Days following such Valuation Date and dividends and interest receivable within 70 days on investments);
(b) Short-Term Money Market Instruments;
(c) commercial paper that is not includible as a Short-Term Money Market Instrument having on the Valuation Date a rating from Moody's of at least P-1 and maturing within 270 days;
(d) preferred stocks (i) which either (A) are issued by issuers
whose senior debt securities are rated at least Baa1 by Moody's
or (B) are rated at least Baa3 by Moody's or (C) in the event
an issuer's senior debt securities or preferred stock is not
rated by Moody's, which either (1) are issued by an issuer
whose senior debt securities are rated at least A- by S&P or
(2) are rated at least A- by S&P and for this purpose have been
assigned a Moody's equivalent rating of at least Baa3, (ii) of
issuers which have (or, in the case of issuers which are
special purpose corporations, whose parent companies have)
common stock listed on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market System,
(iii) which have a minimum issue size (when taken together with
other of the issuer's issues of similar tenor) of $50,000,000,
(iv) which have paid cash dividends consistently during the
preceding three-year period (or, in the case of new issues
without a dividend history, are rated at least A1 by Moody's
or, if not rated by Moody's, are rated at least AA- by S&P),
(v) which pay cumulative cash dividends in U.S. dollars, (vi)
which are not convertible into any other class of stock and do
not have warrants attached, (vii) which are not issued by
issuers in the transportation industry and (viii) in the case
of auction rate preferred stocks, which are rated at least Aa3
by Moody's, or if not rated by Moody's, AAA by S&P, AAA by
Fitch or are otherwise approved in writing by Moody's and have
never had a failed auction; provided, however, that for this
purpose the aggregate Market Value of the Corporation's
holdings of any single issue of auction rate preferred stock
shall not be more than 1% of the Corporation's total assets.
(e) common stocks (i) (A) which are traded on a nationally
recognized stock exchange or in the over-the-counter market,
(B) if cash dividend paying, pay cash dividends in U.S. dollars
and (C) which may be sold without restriction by the
Corporation; provided, however, that (y) common stock which,
while a Moody's Eligible Asset owned by the Corporation, ceases
paying any regular cash dividend will no longer be considered a
Moody's Eligible Asset until 71 days after the date of the
announcement of such cessation, unless the issuer of the common
stock has senior debt securities rated at least A3 by Moody's
and (z) the aggregate Market Value of the Corporation's
holdings of the common stock of any issuer in excess of 4% in
the case of utility common stock and 6% in the case of
non-utility common stock of the aggregate Market Value of the
Corporation's holdings shall not be Moody's Eligible Assets,
(ii) which are securities denominated in any currency other
than the U.S. dollar or securities of issuers formed under the
laws of jurisdictions other than the United States, its states
and the District of Columbia for which there are
dollar-denominated ADRs or their equivalents which are traded
in the United States on exchanges or over-the-counter and are
issued by banks formed under the laws of the United States, its
states or the District of Columbia or (iii) which are
securities of issuers formed under the laws of jurisdictions
other than the United States (and in existence for at least
five years) for which no ADRs are traded; provided, however,
that the aggregate Market Value of the Corporation's holdings
of securities denominated in currencies other than the U.S.
dollar and ADRs in excess of (A) 6% of the aggregate Market
Value of the outstanding shares of common stock of such issuer
thereof or (B) 10% of the Market Value of the Corporation's
Moody's Eligible Assets with respect to issuers formed under
the laws of any single such non-U.S. jurisdiction other than
Australia, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway,
Spain, Sweden, Switzerland and the United Kingdom, shall not be
a Moody's Eligible Asset;
(f) ADR securities, based on the following guidelines: (i) Sponsored ADR program or (ii) Level II or Level III ADRs. Private placement Rule 144A ADRs are not eligible for collateral consideration. Global GDR programs will be evaluated on a case by case basis;
(g) U.S. Government Obligations;
(h) corporate evidences of indebtedness (i) which may be sold
without restriction by the Corporation which are rated at least
B3 (Caa subordinate) by Moody's (or, in the event the security
is not rated by Moody's, the security is rated at least BB- by
S&P and which for this purpose is assigned a Moody's equivalent
rating of one full rating category lower), with such rating
confirmed on each Valuation Date, (ii) which have a minimum
issue size of at least (A) $100,000,000 if rated at least Baa3
or (B) $50,000,000 if rated B or Ba3, (iii) which are not
convertible or exchangeable into equity of the issuing
corporation and have a maturity of not more than 30 years and
(iv) for which, if rated below Baa3 or not rated, the aggregate
Market Value of the Corporation's holdings do not exceed 10% of
the aggregate Market Value of any individual issue of corporate
evidences of indebtedness calculated at the time of original
issuance; and
(i) convertible corporate evidences of indebtedness (i) which are issued by issuers whose senior debt securities are rated at least B2 by Moody's (or, in the event an issuer's senior debt securities are not rated by Moody's, which are issued by issuers whose senior debt securities are rated at least BB by S&P and which for this purpose is assigned a Moody's equivalent rating of one full rating category lower), (ii) which are convertible into common stocks which are traded on the New York Stock Exchange or the American Stock Exchange or are quoted on the Nasdaq National Market System and (iii) which, if cash dividend paying, pay cash dividends in U.S. dollars; provided, however, that once convertible corporate evidences of indebtedness have been converted into common stock, the common stock issued upon conversion must satisfy the criteria set forth in clause (e) above and other relevant criteria set forth in this definition in order to be a Moody's Eligible Asset;
provided, however, that the Corporation's investments in auction rate preferred stocks described in clause (d) above shall be included in Moody's Eligible Assets only to the extent that the aggregate Market Value of such stocks does not exceed 10% of the aggregate Market Value of all of the Corporation's investments meeting the criteria set forth in clauses (a) through (g) above less the aggregate Market Value of those investments excluded from Moody's Eligible Assets pursuant to the paragraph appearing after clause (j) below; and
(j) no assets which are subject to any lien or irrevocably
deposited by the Corporation for the payment of amounts needed
to meet the obligations described in clauses (a)(i) through
(a)(iv) of the definition of "Basic Maintenance Amount" may be
includible in Moody's Eligible Assets.
Notwithstanding anything to the contrary in the preceding clauses
(a)-(j), the Corporation's investment in preferred stock, common stock,
corporate evidences of indebtedness and convertible corporate evidences of
indebtedness shall not be treated as Moody's Eligible Assets except to the
extent they satisfy the following diversification requirements (utilizing
Moody's Industry and Sub-industry Categories) with respect to the Market Value
of the Corporation's holdings:
Issuer:
Non-Utility Utility
Maximum Single Maximum Single
Moody's Rating(1)(2) Issuer(3)(4) Issuer(3)(4)
-------------- ------------ ------------
Aaa 100% 100%
Aa 20% 20%
A 10% 10%
CS/CB, Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 or below 2% 2%
|
Industry and State:
Utility
Non-Utility Maximum Utility
Maximum Single Single Sub- Maximum Single
Moody's Rating(1) Industry(3) Industry(3)(6) State(3)
----------------- ----------- -------------- --------
Aaa 100% 100% 100%
Aa 60% 60% 20%
A 40% 50% 10%(7)
CS/CB, Baa(5) 20% 50% 7%(7)
Ba 12% 12% 0%
B1/B2 8% 8% 0%
B3 or below 5% 5% 0%
|
(1) Unless conclusions regarding liquidity risk as well a estimates of both the probability and severity of default for the Corporation's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or other debt security is unrated by Moody's, S&P or Fitch, the Corporation will use the percentage set forth under "B3 or below" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent.
(2) Corporate evidences of indebtedness from issues ranging $50,000,000 to $100,000,000 are limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one name.
(5) CS/CB refers to common stock and convertible corporate evidences of indebtedness, which are diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility evidences of indebtedness and utility convertible evidences of indebtedness, the definition of industry refers to sub-industries (electric, water, hydro power, gas, diversified). Investments in other sub-industries are eligible only to the extent that the combined sum represents a percentage position of the Moody's Eligible Assets less than or equal to the percentage limits in the diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by California, New York and Texas.
"Moody's Industry Classifications" means for the purposes of determining Moody's Eligible Assets, each of the following industry classifications (or such other classifications as Moody's may from time to time approve for application to the Series D Preferred Stock).
1. Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft Manufacturing, Arms, Ammunition.
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts Manufacturing, Personal Use Trailers, Motor Homes, Dealers.
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan, Agency, Factoring, Receivables.
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil.
5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting, Engineering, Construction, Hardware, Forest Products (building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land Development.
6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural), Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints, Varnish, Fabricating Containers.
7. Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood or Fiberglass.
8. Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies.
9. Diversified/Conglomerate Manufacturing.
10. Diversified/Conglomerate Service.
11. Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution.
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste Disposal.
13. Electronics: Computer Hardware, Electric Equipment, Components, Controllers, Motors, Household Appliances, Information Service Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology.
14. Finance: Investment Brokerage, Leasing, Syndication, Securities.
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals, Agricultural Equipment, Fertilizers.
16. Grocery: Grocery Stores, Convenience Food Stores.
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs, Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment.
18. Home and Office Furnishings, Housewares, and Durable Consumer Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges.
19. Hotels, Motels, Inns and Gaming.
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety.
21. Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling, Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy Manufacturing, Motion Picture Production Theaters, Motion Picture Distribution.
22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators.
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales of the foregoing.
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling.
25. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper Products, Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio, T.V., Cable Broadcasting Equipment.
26. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport.
27. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog, Showroom.
28. Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph, Satellite, Equipment, Research, Cellular.
29. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer, Leather Shoes.
30. Personal Transportation: Air, Bus, Rail, Car Rental.
31. Utilities: Electric, Water, Hydro Power, Gas.
32. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national Agencies.
The Corporation will use SIC codes in determining which industry classification is applicable to a particular investment in consultation with the Independent Accountant and Moody's, to the extent the Corporation considers necessary.
"1933 Act" means the Securities Act of 1933, as amended, or any successor statute.
"1940 Act" means the Investment Company Act of 1940, as amended, or any successor statute.
"Notice of Redemption" shall have the meaning set forth in paragraph 4(c)(i) of Article II hereof.
"Outstanding" means, as of any date, Preferred Stock theretofore issued by the Corporation except:
(a) any such share of Preferred Stock theretofore cancelled by the Corporation or delivered to the Corporation for cancellation;
(b) any such share of Preferred Stock other than auction rate Preferred Stock as to which a notice of redemption shall have been given and for whose payment at the redemption thereof Deposit Assets in the necessary amount are held by the Corporation in trust for, or have been irrevocably deposited with the relevant disbursing agent for payment to, the holder of such share pursuant to the Articles Supplementary with respect thereto;
(c) in the case of auction rate Preferred Stock, any such shares theretofore delivered to the auction agent for cancellation or with respect to which the Corporation has given notice of redemption and irrevocably deposited with the paying agent sufficient funds to redeem such shares; and
(d) any such share in exchange for or in lieu of which other shares have been issued and delivered.
Notwithstanding the foregoing, (i) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any shares of Preferred Stock as to which any subsidiary of the Corporation is the holder will be disregarded and deemed not Outstanding, and (ii) in connection with any auction of shares of auction rate Preferred Stock as to which the Corporation or any Person known to the auction agent to be a subsidiary of the Corporation is the holder will be disregarded and not deemed Outstanding.
"Person" means and includes an individual, a partnership, the Corporation, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
"Preferred Stock" means the preferred stock, par value $.001 per share, of the Corporation, and includes the Series D Preferred Stock.
"Pricing Service" means any of the following: Bloomberg Financial Service, Bridge Information Services, Data Resources Inc., FT Interactive, International Securities Market Association, Merrill Lynch Securities Pricing Service, Muller Data Corp., Reuters, S&P/J.J. Kenny, Telerate, Trepp Pricing and Wood Gundy.
"Redemption Price" has the meaning set forth in paragraph 4(a) of Article II hereof, and for the purposes of these Articles Supplementary shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"S&P" means Standard & Poor's Ratings Services, or its successors at law.
"Series D Preferred Stock" means the [__]% Series D Cumulative Preferred Stock, par value $.001 per share, of the Corporation.
"Series D Asset Coverage Cure Date" means, with respect to the failure by the Corporation to maintain Asset Coverage (as required by paragraph 5(a)(i) of Article II hereof) as of the last Business Day of each March, June, September and December of each year, 60 days following such Business Day.
"Short-Term Money Market Instruments" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Corporation, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in 30 days or A-1+ if such commercial paper matures in over 30 days;
(ii) demand or time deposits in, and banker's acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (B) a United States branch office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia);
(iii) overnight funds; and
(iv) U.S. Government Obligations.
"U.S. Government Obligations" means direct obligations of the United States or by its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption.
"Valuation Date" means the last Business Day of each month, or such other date as the Corporation and Moody's may agree to for purposes of determining the Basic Maintenance Amount.
"Voting Period" shall have the meaning set forth in paragraph 5(b) of Article II hereof.
ARTICLE II
SERIES D PREFERRED STOCK
1. Number of Shares; Ranking.
(a) The initial number of authorized shares constituting the Series D Preferred Stock to be issued is [__]. No fractional shares of Series D Preferred Stock shall be issued.
(b) Shares of Series D Preferred Stock which at any time have been redeemed or purchased by the Corporation shall, after such redemption or purchase, have the status of authorized but unissued shares of Preferred Stock.
(c) The Series D Preferred Stock shall rank on a parity with any other series of Preferred Stock as to the payment of dividends and liquidation preference to which such stock is entitled.
(d) No Holder of Series D Preferred Stock shall have, solely by reason of being such a holder, any preemptive or other right to acquire, purchase or subscribe for any shares of any Preferred Stock or Common Stock or other securities of the Corporation which it may hereafter issue or sell.
2. Dividends.
(a) Holders of shares of Series D Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cumulative cash dividends at the rate of [__]% per annum (computed on the basis of a 360-day year consisting of twelve 30-day months) of the Liquidation Preference on the Series D Preferred Stock and no more, payable quarterly on March 26th, June 26th, September 26th and December 26th in each year (each a "Dividend Payment Date") commencing [__] 2003 (or, if any such day is not a Business Day, then on the next succeeding Business Day) to holders of record of Series D Preferred Stock as they appear on the stock register of the Corporation at the close of business on the fifth preceding Business Day in preference to dividends on shares of Common Stock and any other capital stock of the Corporation ranking junior to the Series D Preferred Stock in payment of dividends. Dividends on shares of Series D Preferred Stock shall accumulate from the date on which such shares are originally issued. Each period beginning on and including a Dividend Payment Date (or the Date of Original Issue, in the case of the first dividend period after issuance of such shares) and ending on but excluding the next succeeding Dividend Payment Date is referred to herein as a "Dividend Period." Dividends on account of arrears for any past Dividend Period or in connection with the redemption of Series D Preferred Stock may be declared and paid at any time, without reference to any Dividend Payment Date, to holders of record on such date not exceeding 30 days preceding the payment date thereof as shall be fixed by the Board of Directors.
(b) (i) No full dividends shall be declared or paid on shares of Series D Preferred Stock for any Dividend Period or part thereof unless full cumulative dividends due through the most recent Dividend Payment Dates therefor for all series of Preferred Stock of the Corporation ranking on a parity with the Series D Preferred Stock as to the payment of dividends have been or contemporaneously are declared and paid through the most recent Dividend Payment Dates therefor. If full cumulative dividends due have not been paid on all Outstanding shares of such Preferred Stock, any dividends being paid on such shares of Preferred Stock (including the Series D Preferred Stock) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of Preferred Stock on the relevant Dividend Payment Date. No holders of shares of Series D Preferred Stock shall be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends as provided in this paragraph 2(b)(i) on shares of Series D Preferred Stock. No interest or sum of money in lieu of interest shall be payable in respect of any dividend payments on any shares of Series D Preferred Stock that may be in arrears.
(ii) For so long as shares of Series D Preferred Stock are Outstanding, the Corporation shall not pay any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Stock or other stock, if any, ranking junior to the Series D Preferred Stock as to payment of dividends and the distribution of assets upon liquidation) in respect of the Common Stock or any other stock of the Corporation ranking junior to the Series D Preferred Stock as to payment of dividends and the distribution of assets upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of Common Stock or any other stock of the Corporation ranking junior to the Series D Preferred Stock as to payment of dividends and upon liquidation (except by conversion into or exchange for stock of the Corporation ranking junior to the Series D Preferred Stock as to payment of dividends and the distribution of assets upon liquidation), unless, in each case, (A) immediately thereafter, the aggregate Adjusted Value of the Corporation's Moody's Eligible Assets shall equal or exceed the Basic Maintenance Amount and the Corporation shall have Asset Coverage, (B) all cumulative dividends on all shares of Series D Preferred Stock due on or prior to the date of the transaction have been declared and paid (or shall have been declared and sufficient funds for the payment thereof deposited with the applicable Dividend-Disbursing Agent) and (C) the Corporation has redeemed the full number of shares of Series D Preferred Stock to be redeemed mandatorily pursuant to any provision contained herein for mandatory redemption.
(iii) Any dividend payment made on the shares of Series D Preferred Stock shall first be credited against the dividends accumulated with respect to the earliest Dividend Period for which dividends have not been paid.
(c) Not later than the Business Day immediately preceding each Dividend Payment Date, the Corporation shall deposit with the Dividend-Disbursing Agent Deposit Assets having an initial combined value sufficient to pay the dividends that are payable on such Dividend Payment Date, which Deposit Assets shall mature on or prior to such Dividend Payment Date. The Corporation may direct the Dividend-Disbursing Agent with respect to the investment of any such Deposit Assets, provided that such investment consists exclusively of Deposit Assets and provided further that the proceeds of any such investment will be available at the opening of business on such Dividend Payment Date.
3. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of shares of Series D Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, after satisfying claims of creditors but before any distribution or payment shall be made in respect of the Common Stock or any other stock of the Corporation ranking junior to the Series D Preferred Stock as to liquidation payments, a liquidation distribution in the amount of $25.00 per share (the "Liquidation Preference"), plus an amount equal to all unpaid dividends accumulated to and including the date fixed for such distribution or payment (whether or not earned or declared by the Corporation, but excluding interest thereon), and such holders shall be entitled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets of the Corporation available for distribution among the holders of all Outstanding shares of Series D Preferred Stock, and any other Outstanding shares of a class or series of Preferred Stock of the Corporation ranking on a parity with the Series D Preferred Stock as to payment upon liquidation, shall be insufficient to permit the payment in full to such holders of Series D Preferred Stock of the Liquidation Preference plus accumulated and unpaid dividends and the amounts due upon liquidation with respect to such other Preferred Stock, then such available assets shall be distributed among the holders of shares of Series D Preferred Stock and such other Preferred Stock ratably in proportion to the respective preferential amounts to which they are entitled. Unless and until the Liquidation Preference plus accumulated and unpaid dividends has been paid in full to the holders of shares of Series D Preferred Stock, no dividends or distributions will be made to holders of the Common Stock or any other stock of the Corporation ranking junior to the Series D Preferred Stock as to liquidation.
4. Redemption.
Shares of the Series D Preferred Stock shall be redeemed by the Corporation as provided below:
(a) Mandatory Redemptions.
If the Corporation is required to redeem any shares of Preferred Stock (which may include Series D Preferred Stock) pursuant to paragraphs 6(b) or 6(c) of Article II hereof, then the Corporation shall, to the extent permitted by the 1940 Act and Maryland law, by the close of business on such Series D Asset Coverage Cure Date or Basic Maintenance Amount Cure Date (herein collectively referred to as a "Cure Date"), as the case may be, fix a redemption date and proceed to redeem shares as set forth in paragraph 4(c) hereof. On such redemption date, the Corporation shall redeem, out of funds legally available therefor, the number of shares of Preferred Stock, which, to the extent permitted by the 1940 Act and Maryland law, at the option of the Corporation may include any proportion of Series D Preferred Stock or any other series of Preferred Stock, equal to the minimum number of shares the redemption of which, if such redemption had occurred immediately prior to the opening of business on such Cure Date, would have resulted in the Corporation having Asset Coverage or an Adjusted Value of its Moody's Eligible Assets equal to or greater than the Basic Maintenance Amount, as the case may be, immediately prior to the opening of business on such Cure Date or, if Asset Coverage or an Adjusted Value of its Eligible Assets equal to or greater than the Basic Maintenance Amount, as the case may be, cannot be so restored, all of the Outstanding shares of Series D Preferred Stock, at a price equal to $25.00 per share plus accumulated but unpaid dividends (whether or not earned or declared by the Corporation) through the date of redemption (the "Redemption Price"). In the event that shares of Preferred Stock are redeemed pursuant to paragraphs 6(b) or 6(c) of Article II hereof, the Corporation may, but is not required to, redeem a sufficient number of shares of Series D Preferred Stock pursuant to this paragraph 4(a) which, when aggregated with other shares of Preferred Stock redeemed by the Corporation, permits the Corporation to have with respect to the shares of Preferred Stock (including the Series D Preferred Stock) remaining Outstanding after such redemption (i) Asset Coverage of as much as 220% and (ii) Moody's Eligible Assets with Adjusted Value of as great as 110% of the Basic Maintenance Amount. In the event that all of the shares of Series D Preferred Stock then Outstanding are required to be redeemed pursuant to paragraph 6 of Article II hereof, the Corporation shall redeem such shares at the Redemption Price and proceed to do so as set forth in paragraph 4(c) hereof.
(b) Optional Redemptions.
Prior to [__], the shares of Series D Preferred Stock are not subject to optional redemption by the Corporation unless such redemption is necessary, in the judgment of the Board of Directors, to maintain the Corporation's status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Commencing [__] and thereafter, and prior thereto to the extent necessary to maintain the Corporation's status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, to the extent permitted by the 1940 Act and Maryland law, the Corporation may at any time upon Notice of Redemption redeem the Series D Preferred Stock in whole or in part at the Redemption Price per share, which notice shall specify a redemption date of not fewer than 15 days nor more than 40 days after the date of such notice.
(c) Procedures for Redemption.
(i) If the Corporation shall determine or be required to redeem shares of Series D Preferred Stock pursuant to this paragraph 4, it shall mail a written notice of redemption ("Notice of Redemption") with respect to such redemption by first class mail, postage prepaid, to each holder of the shares to be redeemed at such holder's address as the same appears on the stock books of the Corporation on the close of business on such date as the Board of Directors may determine, which date shall not be earlier than the second Business Day prior to the date upon which such Notice of Redemption is mailed to the holders of Series D Preferred Stock. Each such Notice of Redemption shall state: (A) the redemption date as established by the Board of Directors; (B) the number of shares of Series D Preferred Stock to be redeemed; (C) the CUSIP number(s) of such shares; (D) the Redemption Price (specifying the amount of accumulated dividends to be included therein); (E) the place or places where the certificate(s) for such shares (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the Notice of Redemption shall so state) are to be surrendered for payment in respect of such redemption; (F) that dividends on the shares to be redeemed will cease to accrue on such redemption date; (G) the provisions of this paragraph 4 under which such redemption is made; and (H) in the case of a redemption pursuant to paragraph 4(a)(i), any conditions precedent to such redemption. If fewer than all shares of Series D Preferred Stock held by any holder are to be redeemed, the Notice of Redemption mailed to such holder also shall specify the number or percentage of shares to be redeemed from such holder. No defect in the Notice of Redemption or the mailing thereof shall affect the validity of the redemption proceedings, except as required by applicable law.
(ii) If the Corporation shall give a Notice of Redemption, then by the close of business on the Business Day preceding the redemption date specified in the Notice of Redemption (so long as any conditions precedent to such redemption have been met) or, if the Dividend-Disbursing Agent so agrees, another date not later than the redemption date, the Corporation shall (A) deposit with the Dividend-Disbursing Agent Deposit Assets that shall mature on or prior to such redemption date having an initial combined value sufficient to effect the redemption of the shares of Series D Preferred Stock to be redeemed and (B) give the Dividend-Disbursing Agent irrevocable instructions and authority to pay the Redemption Price to the holders of the shares of Series D Preferred Stock called for redemption on the redemption date. The Corporation may direct the Dividend-Disbursing Agent with respect to the investment of any Deposit Assets so deposited provided that the proceeds of any such investment will be available at the opening of business on such redemption date. Upon the date of such deposit (unless the Corporation shall default in making payment of the Redemption Price), all rights of the holders of the shares of Series D Preferred Stock so called for redemption shall cease and terminate except the right of the holders thereof to receive the Redemption Price thereof and such shares shall no longer be deemed Outstanding for any purpose. The Corporation shall be entitled to receive, promptly after the date fixed for redemption, any cash in excess of the aggregate Redemption Price of the shares of Series D Preferred Stock called for redemption on such date and any remaining Deposit Assets. Any assets so deposited that are unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be repaid to the Corporation, after which the holders of the shares of Series D Preferred Stock so called for redemption shall look only to the Corporation for payment of the Redemption Price thereof. The Corporation shall be entitled to receive, from time to time after the date fixed for redemption, any interest on the Deposit Assets so deposited.
(iii) On or after the redemption date, each holder of shares of Series D Preferred Stock that are subject to redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in the Notice of Redemption and shall then be entitled to receive the cash Redemption Price, without interest.
(iv) In the case of any redemption of less than all of the shares of Series D Preferred Stock pursuant to these Articles Supplementary, such redemption shall be made pro rata from each holder of shares of Series D Preferred Stock in accordance with the respective number of shares held by each such holder on the record date for such redemption.
(v) Notwithstanding the other provisions of this paragraph 4, the Corporation shall not redeem shares of Series D Preferred Stock unless all accumulated and unpaid dividends on all Outstanding shares of Series D Preferred Stock and other Preferred Stock ranking on a parity with the Series D Preferred Stock with respect to dividends for all applicable past Dividend Periods (whether or not earned or declared by the Corporation) shall have been or are contemporaneously paid or declared and Deposit Assets for the payment of such dividends shall have been deposited with the Dividend-Disbursing Agent as set forth in paragraph 2(c) of Article II hereof, provided, however, that the foregoing shall not prevent the purchase or acquisition of outstanding shares of Preferred Stock pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to holders of all Outstanding shares of Series D Preferred Stock.
If the Corporation shall not have funds legally available for the redemption of, or is otherwise unable to redeem, all the shares of the Series D Preferred Stock or other Preferred Stock designated to be redeemed on any redemption date, the Corporation shall redeem on such redemption date the number of shares of Series D Preferred Stock and other Preferred Stock so designated as it shall have legally available funds, or is otherwise able, to redeem ratably on the basis of the Redemption Price from each holder whose shares are to be redeemed, and the remainder of the shares of the Series D Preferred Stock and other Preferred Stock designated to be redeemed shall be redeemed on the earliest practicable date on which the Corporation shall have funds legally available for the redemption of, or is otherwise able to redeem, such shares upon Notice of Redemption.
5. Voting Rights.
(a) General.
Except as otherwise provided by law or as specified in the Charter, each holder of shares of Series D Preferred Stock and any other Preferred Stock shall be entitled to one vote for each share held on each matter submitted to a vote of stockholders of the Corporation, and the holders of Outstanding shares of Preferred Stock, including Series D Preferred Stock, and of shares of Common Stock shall vote together as a single class; provided, however, that at any meeting of the stockholders of the Corporation held for the election of directors, the holders of Outstanding shares of Preferred Stock, including Series D Preferred Stock, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, to elect a number of Corporation's directors, such that following the election of directors at the meeting of the stockholders, the Corporation's Board of Directors shall contain two directors elected by the holders of the Outstanding shares of Preferred Stock, including the Series D Preferred Stock. Subject to paragraph 5(b) of Article II hereof, the holders of outstanding shares of capital stock of the Corporation, including the holders of Outstanding shares of Preferred Stock, including the Series D Preferred Stock, voting as a single class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors.
During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number that, when added to the two directors elected exclusively by the holders of shares of Preferred Stock pursuant to paragraph 5(a) above, would constitute a majority of the Board of Directors as so increased by such smallest number; and the holders of shares of Preferred Stock shall be entitled, voting separately as one class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), to elect such smallest number of additional directors, together with the two directors that such holders are in any event entitled to elect pursuant to paragraph 5(a) above. The Corporation and the Board of Directors shall take all necessary action, including amending the Corporation's bylaws, to effect an increase in the number of directors as described in the preceding sentence. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the Outstanding shares of Series D Preferred Stock equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the Dividend-Disbursing Agent for the payment of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Stock are entitled to elect a majority of the directors of the Corporation under the 1940 Act or Articles Supplementary creating such shares.
Upon the termination of a Voting Period, the voting rights described in this paragraph 5(b) shall cease, subject always, however, to the reverting of such voting rights in the holders of Preferred Stock upon the further occurrence of any of the events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters.
So long as any shares of Series D Preferred Stock are Outstanding,
the Corporation shall not, without the affirmative vote of the holders of a
majority (as defined in the 1940 Act) of the shares of Preferred Stock
Outstanding at the time, voting separately as one class, amend, alter or
repeal the provisions of the Charter, whether by merger, consolidation or
otherwise, so as to materially adversely affect any of the contract rights
expressly set forth in the Charter with respect to holders of shares of Series
D Preferred Stock or any other Preferred Stock. To the extent permitted under
the 1940 Act, in the event shares of more than one series of Preferred Stock
are Outstanding, the Corporation shall not effect any of the actions set forth
in the preceding sentence which materially adversely affects the contract
rights expressly set forth in the Charter with respect to a holder of shares
of a series of Preferred Stock differently than those of a holder of shares of
any other series of Preferred Stock without the affirmative vote of the
holders of at least a majority of the shares of Preferred Stock of each series
materially adversely affected and Outstanding at such time (each such
materially adversely affected series voting separately as a class to the
extent its rights are affected differently). The Corporation shall notify
Moody's ten Business Days prior to any such vote described above. Unless a
higher percentage is provided for under the Charter or applicable law, the
affirmative vote of the holders of a majority of the Outstanding shares of
Preferred Stock, including Series D Preferred Stock, voting together as a
single class, will be required to approve any plan of reorganization adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. For purposes of this paragraph 5(c), the phrase
"vote of the holders of a majority of the Outstanding shares of Preferred
Stock" (or any like phrase) shall mean, in accordance with Section 2(a)(42) of
the 1940 Act, the vote, at the annual or a special meeting of the stockholders
of the Corporation duly called (i) of 67 percent or more of the shares of
Preferred Stock present at such meeting, if the holders of more than 50
percent of the Outstanding shares of Preferred Stock are present or
represented by proxy; or (ii) of more than 50 percent of the Outstanding
shares of Preferred Stock, whichever is less. The class vote of holders of
shares of Preferred Stock described above will in each case be in addition to
a separate vote of the requisite percentage of shares of Common Stock and
shares of Preferred Stock, including Series D Preferred Stock, voting together
as a single class, necessary to authorize the action in question. An increase
in the number of authorized shares of Preferred Stock pursuant to the Charter
or the issuance of additional shares of any series of Preferred Stock
(including Series D Preferred Stock) pursuant to the Charter shall not in and
of itself be considered to adversely affect the contract rights of the holders
of Series D Preferred Stock. The provisions of this paragraph 5(c) are subject
to the provisions of paragraph 6 of Article II hereof.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the holders of shares of Preferred Stock to elect additional directors as described in paragraph 5(b) above, the Corporation shall call a special meeting of such holders and instruct the Dividend-Disbursing Agent to mail a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more than 20 days after the date of mailing of such notice. If the Corporation fails to send such notice to the Dividend-Disbursing Agent or if the Corporation does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the day on which such notice is mailed or such other date as the Board of Directors shall determine. At any such special meeting and at each meeting held during a Voting Period, such holders of Preferred Stock, voting together as a class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be entitled to elect the number of directors prescribed in paragraph 5(b) above on a one-vote-per-share basis. At any such meeting or adjournment thereof in the absence of a quorum, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting without notice, other than by an announcement at the meeting, to a date not more than 90 days after the original record date.
(ii) For purposes of determining any rights of the holders of Series D Preferred Stock to vote on any matter or the number of shares required to constitute a quorum, whether such right is created by these Articles Supplementary, by the other provisions of the Charter, by statute or otherwise, a share of Series D Preferred Stock which is not Outstanding shall not be counted.
(iii) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of holders of Preferred Stock, including Series D Preferred Stock, to elect directors shall continue, notwithstanding the election at such meeting by such holders of the number of directors that they are entitled to elect, and the persons so elected by such holders, together with the two incumbent directors elected by the holders of Preferred Stock, including Series D Preferred Stock, and the remaining incumbent directors elected by the holders of the Common Stock and Preferred Stock, shall constitute the duly elected directors of the Corporation.
(iv) Upon the expiration of a Voting Period, the terms of office of
the additional directors elected by the holders of Preferred Stock pursuant to
paragraph 5(b) above shall expire at the earliest time permitted by law, and
the remaining directors shall constitute the directors of the Corporation and
the voting rights of such holders of Preferred Stock, including Series D
Preferred Stock, to elect additional directors pursuant to paragraph 5(b)
above shall cease, subject to the provisions of the last sentence of paragraph
5(b). Upon the expiration of the terms of the directors elected by the holders
of Preferred Stock pursuant to paragraph 5(b) above, the number of directors
shall be automatically reduced to the number and composition of directors on
the Board immediately preceding such Voting Period.
(e) Exclusive Remedy.
Unless otherwise required by law, the holders of shares of Series D Preferred Stock shall not have any rights or preferences other than those specifically set forth herein. The holders of shares of Series D Preferred Stock shall have no preemptive rights or rights to cumulative voting. In the event that the Corporation fails to pay any dividends on the shares of Series D Preferred Stock, the exclusive remedy of the holders shall be the right to vote for directors pursuant to the provisions of this paragraph 5.
(f) Notification to Moody's.
In the event a vote of holders of Series D Preferred Stock is required pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the Series D Preferred Stock is rated by Moody's at the Corporation's request, the Corporation shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify Moody's that such vote is to be taken and the nature of the action with respect to which such vote is to be taken and, not later than ten Business Days after the date on which such vote is taken, notify Moody's of the result of such vote.
6. Coverage Tests.
(a) Determination of Compliance.
For so long as any shares of Series D Preferred Stock are Outstanding, the Corporation shall make the following determinations:
(i) Asset Coverage. The Corporation shall have Asset Coverage as of the last Business Day of each March, June, September and December of each year in which any share of Series D Preferred Stock is Outstanding.
(ii) Basic Maintenance Amount Requirement.
(A) For so long as any shares of Series D Preferred Stock are Outstanding and are rated by Moody's at the Corporation's request, the Corporation shall maintain, on each Valuation Date, Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, each as of such Valuation Date. Upon any failure to maintain Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, the Corporation shall use all commercially reasonable efforts to retain Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount on or prior to the Basic Maintenance Amount Cure Date, by altering the composition of its portfolio or otherwise.
(B) The Administrator shall prepare a Basic Maintenance Report relating to each Valuation Date. On or before 5:00 P.M., New York City time, on the fifth Business Day after the first Valuation Date following the Date of Original Issue of the Series D Preferred Stock and after each (1) Annual Valuation Date, (2) Valuation Date on which the Corporation fails to satisfy the requirements of paragraph 6(a)(ii)(A) above, (3) Basic Maintenance Amount Cure Date following a Valuation Date on which the Corporation fails to satisfy the requirements of paragraph 6(a)(ii)(A) above and (4) Valuation Date and any immediately succeeding Business Day on which the Adjusted Value of the Corporation's Moody's Eligible Assets exceeds the Basic Maintenance Amount by 5% or less, the Corporation shall complete and deliver to Moody's a Basic Maintenance Report, which will be deemed to have been delivered to Moody's if Moody's receives a copy or telecopy, telex or other electronic transcription or transmission of the Basic Maintenance Report and on the same day the Corporation mails to Moody's for delivery on the next Business Day the Basic Maintenance Report. A failure by the Corporation to deliver a Basic Maintenance Report under this paragraph 6(a)(ii)(B) shall be deemed to be delivery of a Basic Maintenance Report indicating an Adjusted Value of the Corporation's Moody's Eligible Assets less than the Basic Maintenance Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery to Moody's of a Basic Maintenance Report in accordance with paragraph 6(a)(ii)(B) above relating to an Annual Valuation Date, the Corporation shall deliver to Moody's an Accountant's Confirmation relating to such Basic Maintenance Report that was prepared by the Corporation during the quarter ending on such Annual Valuation Date. Also, within ten Business Days after the date of delivery to Moody's of a Basic Maintenance Report in accordance with paragraph 6(a)(ii)(B) above relating to a Valuation Date on which the Corporation fails to satisfy the requirements of paragraph 6(a)(ii)(A) and any Basic Maintenance Amount Cure Date, the Corporation shall deliver to Moody's an Accountant's Confirmation relating to such Basic Maintenance Report.
(D) In the event the Adjusted Value of the Corporation's Moody's Eligible Assets shown in any Basic Maintenance Report prepared pursuant to paragraph 6(a)(ii)(B) above is less than the applicable Basic Maintenance Amount, the Corporation shall have until the Basic Maintenance Amount Cure Date to achieve an Adjusted Value of the Corporation's Moody's Eligible Assets at least equal to the Basic Maintenance Amount, and upon such achievement (and not later than such Basic Maintenance Amount Cure Date) the Corporation shall inform Moody's of such achievement in writing by delivery of a revised Basic Maintenance Report showing an Adjusted Value of the Corporation's Moody's Eligible Assets at least equal to the Basic Maintenance Amount as of the date of such revised Basic Maintenance Report.
(E) On or before 5:00 P.M., New York City time, on no later than the fifth Business Day after the next Valuation Date following each date on which the Corporation has repurchased more than 1% of its Common Stock since the most recent date of delivery of a Basic Maintenance Report, the Corporation shall complete and deliver to Moody's a Basic Maintenance Report. A Basic Maintenance Report delivered as provided in paragraph 6(a)(ii)(B) above also shall be deemed to have been delivered pursuant to this paragraph 6(a)(ii)(E).
(b) Failure to Meet Asset Coverage.
If the Corporation fails to have Asset Coverage as provided in paragraph 6(a)(i) hereof and such failure is not cured as of the related Series D Asset Coverage Cure Date, (i) the Corporation shall give a Notice of Redemption as described in paragraph 4 of Article II hereof with respect to the redemption of a sufficient number of shares of Preferred Stock, which at the Corporation's determination (to the extent permitted by the 1940 Act and Maryland law) may include any proportion of Series D Preferred Stock, to enable it to meet the requirements of paragraph 6(a)(i) above, and, at the Corporation's discretion, such additional number of shares of Series D Preferred Stock or other Preferred Stock in order that the Corporation have Asset Coverage with respect to the shares of Series D Preferred Stock and any other Preferred Stock remaining Outstanding after such redemption as great as 220%, and (ii) deposit with the Dividend-Disbursing Agent Deposit Securities having an initial combined value sufficient to effect the redemption of the shares of Series D Preferred Stock or other Preferred Stock to be redeemed, as contemplated by paragraph 4(a) of Article II hereof.
(c) Failure to Maintain Moody's Eligible Assets having an Adjusted Value at Least Equal to the Basic Maintenance Amount.
If the Corporation fails to have Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount as provided in paragraph 6(a)(ii)(A) above and such failure is not cured, the Corporation shall, on or prior to the Basic Maintenance Amount Cure Date, (i) give a Notice of Redemption as described in paragraph 4 of Article II hereof with respect to the redemption of a sufficient number of shares of Series D Preferred Stock or other Preferred Stock to enable it to meet the requirements of paragraph 6(a)(ii)(A) above, and, at the Corporation's discretion, such additional number of shares of Series D Preferred Stock or other Preferred Stock in order that the Corporation have Adjusted Assets with respect to the remaining shares of Series D Preferred Stock and any other Preferred Stock remaining Outstanding after such redemption as great as 110% of the Basic Maintenance Amount, and (ii) deposit with the Dividend-Disbursing Agent Deposit Assets having an initial combined value sufficient to effect the redemption of the shares of Series D Preferred Stock or other Preferred Stock to be redeemed, as contemplated by paragraph 4(a) of Article II hereof.
(d) Status of Shares Called for Redemption.
For purposes of determining whether the requirements of paragraphs 6(a)(i) and 6(a)(ii)(A) hereof are satisfied, (i) no share of the Series D Preferred Stock shall be deemed to be Outstanding for purposes of any computation if, prior to or concurrently with such determination, sufficient Deposit Assets to pay the full Redemption Price for such share shall have been deposited in trust with the Dividend-Disbursing Agent (or applicable paying agent) and the requisite Notice of Redemption shall have been given, and (ii) such Deposit Assets deposited with the Dividend-Disbursing Agent (or paying agent) shall not be included.
7. Certain Other Restrictions.
(a) For so long as the Series D Preferred Stock is rated by Moody's
at the request of the Corporation, the Corporation will not, and will cause
the Adviser not to, (i) knowingly and willfully purchase or sell any asset for
the specific purpose of causing, and with the actual knowledge that the effect
of such purchase or sale will be to cause, the Corporation to have Moody's
Eligible Assets having an Adjusted Value as of the date of such purchase or
sale to be less than the Basic Maintenance Amount as of such date, (ii) in the
event that, as of the immediately preceding Valuation Date, the Adjusted Value
of the Corporation's Moody's Eligible Assets exceeded the Basic Maintenance
Amount by 5% or less, alter the composition of the Corporation's assets in a
manner reasonably expected to reduce the Adjusted Value of the Corporation's
Moody's Eligible Assets, unless the Corporation shall have confirmed that,
after giving effect to such alteration, the Adjusted Value of the
Corporation's Moody's Eligible Assets exceeded the Basic Maintenance Amount or
(iii) declare or pay any dividend or other distribution on any shares of
Common Stock or repurchase any shares of Common Stock, unless the Corporation
shall have confirmed that, after giving effect to such declaration, other
distribution or repurchase, the Corporation continued to satisfy the
requirements of paragraph 6(a)(ii)(A) of Article II hereof.
(b) For so long as the Series D Preferred Stock is rated by Moody's at the request of the Corporation, unless the Corporation shall have received written confirmation from Moody's, the Corporation may engage in the lending of its portfolio securities only in an amount of up to 5% of the Corporation's total assets, provided that the Corporation receives cash collateral for such loaned securities which is maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities and, if invested, is invested only in Short-Term Money Market Investments or in money market mutual funds meeting the requirements of Rule 2a-7 under the 1940 Act that maintain a constant $1.00 per share net asset value and treat the loaned securities rather than the collateral as the assets of the Corporation for purposes of determining compliance with paragraph 6 of Article II hereof.
(c) For so long as the Series D Preferred Stock is rated by Moody's at the request of the Corporation, the Corporation shall not consolidate the Corporation with, merge the Corporation into, sell or otherwise transfer all or substantially all of the Corporation's assets to another Person or adopt a plan of liquidation of the Corporation, in each case without providing prior written notification to Moody's.
8. Limitation on Incurrence of Additional Indebtedness and Issuance of Additional Preferred Stock
(a) So long as any shares of Series D Preferred Stock are Outstanding the Corporation may issue and sell one or more series of a class of senior securities of the Corporation representing indebtedness under Section 18 of the 1940 Act and/or otherwise create or incur indebtedness, provided that immediately after giving effect to the incurrence of such indebtedness and to its receipt and application of the proceeds thereof, the Corporation shall have an "asset coverage" for all senior securities representing indebtedness, as defined in Section 18(h) of the 1940 Act, of at least 300% of the amount of all indebtedness of the Corporation then Outstanding and no such additional indebtedness shall have any preference or priority over any other indebtedness of the Corporation upon the distribution of the assets of the Corporation or in respect of the payment of interest. Any possible liability resulting from lending and/or borrowing portfolio securities, entering into reverse repurchase agreements, entering into futures contracts and writing options, to the extent such transactions are made in accordance with the investment restrictions of the Corporation then in effect, shall not be considered to be indebtedness limited by this paragraph 8(a).
(b) So long as any shares of Series D Preferred Stock are
Outstanding, the Corporation may issue and sell shares of one or more other
series of Preferred Stock constituting a series of a class of senior
securities of the Corporation representing stock under Section 18 of the 1940
Act in addition to the shares of Series D Preferred Stock, provided that (i)
the Corporation shall, immediately after giving effect to the issuance of such
additional Preferred Stock and to its receipt and application of the proceeds
thereof, including, without limitation, to the redemption of Preferred Stock
for which a Redemption Notice has been mailed prior to such issuance, have an
"asset coverage" for all senior securities which are stock, as defined in
Section 18(h) of the 1940 Act, of at least 200% of the sum of the liquidation
preference of the shares of Series D Preferred Stock and all other Preferred
Stock of the Corporation then Outstanding, and (ii) no such additional
Preferred Stock shall have any preference or priority over any other Preferred
Stock of the Corporation upon the distribution of the assets of the
Corporation or in respect of the payment of dividends.
ARTICLE III
ABILITY OF BOARD OF DIRECTORS TO MODIFY THE ARTICLES SUPPLEMENTARY
The calculation of Adjusted Value, Basic Maintenance Amount and the elements of each of them and the definitions of such terms and elements may be modified by action of the Board of Directors without further action by the stockholders if the Board of Directors determines that such modification is necessary to prevent a reduction in rating of the shares of Preferred Stock by Moody's or is in the best interests of the holders of shares of Common Stock and is not adverse to the holders of Preferred Stock in view of advice to the Corporation by Moody's that such modification would not adversely affect its then-current rating of the shares of Series D Preferred Stock. To the extent the Corporation is unable to obtain an opinion of counsel to the effect that operation of the foregoing sentence is enforceable in the circumstances then obtaining, the calculation of Adjusted Value, Basic Maintenance Amount and the elements of each of them and the definitions of such terms and the elements thereof shall be adjusted from time to time without further action by the Board of Directors and the stockholders only to reflect changes made thereto independently by Moody's (if Moody's is then rating the Series D Preferred Stock at the request of the Corporation) if Moody's has advised the Corporation in writing separately (a) of such adjustments and (b) that the revised calculation definition would not cause Moody's to reduce or withdraw its then-current rating of the shares of Series D Preferred Stock. The adjustments contemplated by the preceding sentence shall be made effective upon the time the Corporation receives the notice from Moody's to the effect specified in clause (b) of the preceding sentence. Any such modification may be rescinded or further modified by action of the Board of Directors and the stockholders.
Notwithstanding the provisions of the preceding paragraph, to the extent permitted by law, the Board of Directors, without the vote of the holders of the Series D Preferred Stock or any other capital stock of the Corporation, may amend the provisions of these Articles Supplementary to resolve any inconsistency or ambiguity or to remedy any formal defect so long as the amendment does not materially adversely affect any of the contract rights of holders of shares of the Series D Preferred Stock or any other capital stock of the Corporation or adversely affect the then-current rating on the Series D Preferred Stock by Moody's.
IN WITNESS WHEREOF, The Gabelli Equity Trust Inc. has caused these presents to be signed in its name and on its behalf by a duly authorized officer, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Corporation further acknowledge said instrument to be the corporate act of the Corporation, and state that to the best of their knowledge, information and belief under penalty of perjury the matters and facts herein set forth with respect to approval are true in all material respects, all on [__], 2003.
THE GABELLI EQUITY TRUST INC.
By
Name: Bruce Alpert
Title: President
Attest:
Name: James E. McKee
Title: Secretary
Exhibit 99(a)(v)
THE GABELLI EQUITY TRUST INC.
ARTICLES SUPPLEMENTARY
CREATING AND FIXING THE RIGHTS OF
SERIES E AUCTION RATE PREFERRED STOCK
The Gabelli Equity Trust Inc., a Maryland corporation having its principal office in Baltimore City, Maryland (the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of the State of Maryland that:
FIRST: The Board of Directors of the Corporation, at a meeting duly convened and held on May 14, 2003, pursuant to authority expressly vested in it by Article V of the Charter of the Corporation, adopted resolutions reclassifying 2,000,000 shares of authorized but unissued common stock as preferred stock of the Corporation, par value $.001 per share, and authorizing the issuance and designation of up to 6,006,000 shares of preferred stock as "Series E Auction Rate Preferred Stock" at such times as the Pricing Committee should determine.
SECOND: The Pricing Committee, at a meeting duly convened and held on
[__] 2003, pursuant to authority granted it by the Board of Directors of the
Corporation at its [__], 2003 meeting, approved the issuance by the
Corporation of [__] shares of Series E Auction Rate Preferred Stock.
THIRD: The preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the Series E Auction Rate Preferred Stock, par value $.001 per share, as set by the Board of Directors are as follows:
DESIGNATION
Series E Preferred Stock: A series of [__] preferred shares, par value $0.001 per share, is hereby designated "Series E Auction Rate Preferred Stock" (the "Series E Preferred Stock"). Each share of Series E Preferred Stock may be issued on a date to be determined by the Board of Directors of the Corporation; have an initial dividend rate per annum, an initial Dividend Period and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Charter applicable to Preferred Stock of the Corporation, as are set forth in these Articles Supplementary. The Series E Preferred Stock shall constitute a separate series of Preferred Stock.
As used in these Articles Supplementary, unless the context requires otherwise, each capitalized term shall have the meaning ascribed to it in paragraph 13 of Article I and paragraph 1 of Article II of these Articles Supplementary. Paragraph references that do not reference a specific Article shall refer to the Article in which the reference occurs, unless the context requires otherwise.
Article I: Series E Preferred Stock Terms
1. Number of Shares; Ranking.
(a) The initial number of authorized shares constituting the Series E Preferred Stock to be issued is [__]. No fractional shares of Series E Preferred Stock shall be issued.
(b) Shares of Series E Preferred Stock which at any time have been redeemed or purchased by the Corporation shall, after such redemption or purchase, have the status of authorized but unissued shares of Preferred Stock.
(c) The Series E Preferred Stock shall rank on a parity with any other series of Preferred Stock as to the payment of dividends and liquidation preference to which such stock is entitled.
(d) No Holder of Series E Preferred Stock shall have, solely by reason of being such a holder, any preemptive or other right to acquire, purchase or subscribe for any shares of any Preferred Stock or Common Stock or other securities of the Corporation which it may hereafter issue or sell.
2. Dividends.
(a) The Holders of Series E Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cumulative cash dividends on their shares of Series E Preferred Stock at the dividend rate determined by the Board of Directors in the manner described under "Designation" above during the period from and after the date on which such shares are originally issued and including the last day of the initial Dividend Period and, thereafter, at the rate, determined as set forth in paragraph 2(c), and no more, payable on the respective dates determined as set forth in paragraph 2(b). Dividends on the Outstanding shares of Series E Preferred Stock shall accumulate from the date on which such shares are originally issued.
(b) (i) Dividends shall be payable when, as and if declared by the Board of Directors following the initial Dividend Payment Date, subject to paragraph 2(b)(ii), on the Series E Preferred Stock as follows:
(A) with respect to any Dividend Period of one year or less, on the first Business Day following the last day of such Dividend Period; provided, however, if the Dividend Period is more than 91 days then on the 91st, 181st and 271st days within such period, if applicable, and on the first Business Day following the last day of such Dividend Period; and
(B) with respect to any Dividend Period of more than one year, on a quarterly basis on each March 26th, June 26th, September 26th and December 26th within such Dividend Period and on the first Business Day following the last day of such Dividend Period.
(ii) If a day for payment of dividends resulting from the application of paragraph 2(b)(i) above is not a Business Day, then the Dividend Payment Date shall be the first Business Day following such day for payment of dividends.
(iii) The Corporation shall pay to the Paying Agent not later than 12:00 noon, New York City time, on the Business Day immediately preceding each Dividend Payment Date for Series E Preferred Stock, an aggregate amount of immediately available funds equal to the dividends to be paid to all Holders of such Series E Preferred Stock on such Dividend Payment Date. The Corporation shall not be required to establish any reserves for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the payment of dividends shall be held in trust for the payment of such dividends by the Paying Agent for the benefit of the Holders specified in paragraph 2(b)(v). Unless instructed by the Corporation in writing the Paying Agent will hold such moneys uninvested. Any moneys paid to the Paying Agent in accordance with the foregoing but not applied by the Paying Agent to the payment of dividends, including interest earned, if any, on such moneys, will, to the extent permitted by law, be repaid to the Corporation at the end of 90 days from the date on which such moneys were to have been so applied.
(v) Each dividend on Series E Preferred Stock shall be paid on the Dividend Payment Date therefor to the Holders of Series E Preferred Stock as their names appear on the stock ledger or stock records of the Corporation on the Business Day immediately preceding such Dividend Payment Date; provided, however, that if dividends are in arrears, they may be declared and paid at any time to Holders as their names appear on the stock ledger or stock records of the Corporation on such date not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. No interest will be payable in respect of any dividend payment or payments which may be in arrears.
(c) (i) For each Dividend Period after the initial Dividend Period for the Outstanding shares of Series E Preferred Stock, the dividend rate shall be equal to the rate (stated as a rate per annum) that results from an Auction (but the rate set at the Auction will not exceed the Maximum Rate); provided, however, that if an Auction for any subsequent Dividend Period of Series E Preferred Stock is not held for any reason (other than as provided in the immediately following sentence) or if Sufficient Clearing Bids have not been made in an Auction (other than as a result of all shares of Series E Preferred Stock being the subject of Submitted Hold Orders), then the dividend rate on each Outstanding share of Series E Preferred Stock for any such Dividend Period shall be the Maximum Rate, except as provided in 2(c)(ii) below. If an Auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, then the length of the then-current Dividend Period shall be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events), the Applicable Rate for such period shall be the Applicable Rate for the Dividend Period so extended and the Dividend Payment Date for such Dividend Period shall be the first Business Day immediately succeeding the end of such period.
(ii) Subject to the cure provisions in paragraph 2(c)(iii) below, a Default Period with respect to the Outstanding shares of Series E Preferred Stock will commence if the Corporation fails to deposit irrevocably in trust in same-day funds, with the Paying Agent by 12:00 noon, New York City time on the Business Day immediately preceding the relevant Dividend Payment Date, the full amount of any declared dividend on the Outstanding shares of Series E Preferred Stock then payable on that Dividend Payment Date (a "Dividend Default").
Subject to the cure provisions of paragraph 2(c)(iii) below, a Default Period with respect to a Dividend Default or a Redemption Default shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid dividends and any unpaid Redemption Price in respect of such shares of Series E Preferred Stock shall have been deposited irrevocably in trust in same-day funds with the Paying Agent. In the case of a Default Period, the following shall apply:
A. Each Dividend Period that commences during a Default Period will be a Standard Dividend Period.
B. The dividend rate for each Dividend Period that commences and concludes during a Default Period will be equal to the Default Rate.
C. In the event a Holder sells Series E Preferred Stock at an Auction that takes place on the day a Dividend Default occurs and the Default is not cured in accordance with paragraph 2(c)(iii) below, such former Holder shall be entitled to receive the Default Rate with respect to the shares of Series E Preferred Stock such Holder sold at the Auction for the Dividend Period with respect to which the Default occurred.
D. In the event a Dividend Period commences during a Default Period and such Dividend Period continues after such Default Period has ended (a) the dividend rate for the portion of such Dividend Period that occurs during the Default Period will be the Default Rate and (b) the dividend rate for the portion of such Dividend Period that falls outside the Default Period will be (i) the Applicable Rate, in the case of the first Dividend Period following a Default, or (ii) the Maximum Rate, in the case of any other Dividend Period commencing during a Default Period.
E. The commencement of a Default Period will not by itself cause the commencement of a new Dividend Period.
F. No Auction will be held during an applicable Default Period; provided, however, that if a Default Period shall end prior to the end of a Standard Dividend Period that had commenced during such Default Period, an Auction will be held on the last day of such Standard Dividend Period.
(iii) No Default Period with respect to a Dividend Default or Redemption Default shall be deemed to have commenced, unless such default is due solely to the willful failure of the Corporation, if the amount of any dividend or any Redemption Price due is deposited irrevocably in trust in same-day funds with the Paying Agent by 12:00 noon, New York City time within three Business Days after the applicable Dividend Payment Date or Redemption Date, together with an amount in respect of such shares of Series E Preferred Stock equal to the Default Rate applied to the amount of such non-payment based on the actual number of days that would otherwise have comprised the Default Period divided by 360. The "Default Rate" shall be equal to the Reference Rate multiplied by three (3).
(iv) The amount of dividends per share of Series E Preferred Stock payable (if declared) on each Dividend Payment Date of each Dividend Period of less than one year (or in respect of dividends on another date in connection with a redemption during such Dividend Period) shall be computed by multiplying the relevant Applicable Rate, Default Rate or Maximum Rate, as the case may be, for such Dividend Period (or a portion thereof) by a fraction, the numerator of which will be the number of days in such Dividend Period (or portion thereof) that such share of Series E Preferred Stock was Outstanding and for which the Applicable Rate, Maximum Rate or the Default Rate was applicable (but in no event shall the numerator exceed 360) and the denominator of which will be 360, multiplying the amount so obtained by $25,000, and rounding the amount so obtained to the nearest cent. During any Dividend Period of one year or more, the amount of dividends per share of Series E Preferred Stock payable on any Dividend Payment Date (or in respect of dividends on another date in connection with a redemption during such Dividend Period) will be computed as described in the preceding sentence except that the numerator, with respect to any full twelve month period, will be 360.
(d) Any dividend payment made on shares of Series E Preferred Stock shall first be credited against the earliest accumulated but unpaid dividends due with respect to such shares.
(e) For so long as shares of the Series E Preferred Stock are Outstanding, except as otherwise contemplated by Article I of these Articles Supplementary, the Corporation shall not pay any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Stock or other stock, if any, ranking junior to the Series E Preferred Stock as to dividends and upon liquidation) with respect to Common Stock or any other capital stock of the Corporation ranking junior to the Series E Preferred Stock as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Stock or other capital stock ranking junior to the Series E Preferred Stock (except by conversion into or exchange for shares of the Corporation ranking junior to the Series E Preferred Stock as to dividends and upon liquidation), unless, in each case, (i) immediately after such transaction, the Corporation would have Eligible Assets with an aggregate Discounted Value at least equal to the Basic Maintenance Amount and Asset Coverage would be achieved, (ii) all cumulative and unpaid dividends due on or prior to the date of the transaction have been declared and paid in full with respect to the Corporation's Preferred Stock, including the Series E Preferred Stock (or shall have been declared and sufficient funds for the payment thereof deposited with the applicable Paying Agent) and (iii) the Corporation has redeemed the full number of shares of Preferred Stock to be redeemed mandatorily pursuant to any provision for mandatory redemption contained herein, including, without limitation, any such provision contained in paragraph 3(a)(ii).
(f) No full dividends shall be declared or paid on the Series E Preferred Stock for any Dividend Period or part thereof, unless full cumulative dividends due through the most recent Dividend Payment Dates therefor for all Outstanding series of Preferred Stock of the Corporation ranking on a parity with the Series E Preferred Stock as to the payment of dividends have been or contemporaneously are declared and paid through the most recent Dividend Payment Dates therefor. If full cumulative dividends due have not been paid on all Outstanding shares of such Preferred Stock, any dividends being paid on such shares of Preferred Stock (including the Series E Preferred Stock) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of Preferred Stock then Outstanding on the relevant Dividend Payment Date.
3. Redemption.
(a) (i) Optional Redemption. After the initial Dividend Period, subject to any Non-Call Period and the provisions of this paragraph 3 and to the extent permitted under the 1940 Act and Maryland law, the Corporation may, at its option, redeem in whole or in part out of funds legally available therefor, shares of Series E Preferred Stock by delivering a notice of redemption not less than 7 calendar days and not more than 40 calendar days prior to the Redemption Date, in the case of shares herein designated as (A) having a Dividend Period of one year or less, on the next Business Day after the last day of such Dividend Period, at a redemption price per share equal to $25,000, plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the Redemption Date ("Redemption Price"), or (B) having a Dividend Period of more than one year, on any Business Day prior to the end of the relevant Dividend Period, at the Redemption Price subject to any applicable Specific Redemption Provisions. Notwithstanding the foregoing, the Corporation shall not give a notice of any redemption pursuant to this paragraph 3(a)(i) unless, on the date on which the Corporation gives such notice (x) the Corporation reasonably believes that, assuming the fulfillment of any conditions precedent specified in such notice, it will be able to deposit with the Paying Agent when due Deposit Assets with maturity or tender dates not later than the day preceding the applicable Redemption Date and having a value not less than the amount (including any applicable premium) due to Holders of the Series E Preferred Stock to be redeemed on the Redemption Date and (y) the Corporation would have Eligible Assets with an aggregate Discounted Value at least equal to the Basic Maintenance Amount and Asset Coverage immediately subsequent to such redemption, if such redemption were to occur on such date, it being understood that the provisions of paragraph 3(d) shall be applicable in such circumstances in the event the Corporation makes the deposit and takes the other action required thereby.
(ii) Mandatory Redemption. So long as shares of Series E Preferred
Stock are Outstanding, if the Corporation fails (A) as of any Valuation Date
to meet the Basic Maintenance Test and such failure is not cured by the Basic
Maintenance Amount Cure Date or (B) as of any Quarterly Valuation Date to meet
Asset Coverage and such failure is not cured by the Series E Asset Coverage
Cure Date or (C) as of any valuation or measuring date applicable to any other
series of Preferred Stock to meet any applicable maintenance amount test and
such failure is not cured by the relevant cure date (any such cure date,
together with any Basic Maintenance Amount Cure Date or Series E Asset
Coverage Cure Date, a "Cure Date"), Preferred Stock, which at the
Corporation's determination may include Series E Preferred Stock, will be
subject to mandatory redemption out of funds legally available therefor. The
series and number of shares of Preferred Stock to be redeemed in such
circumstances will be determined by the Corporation, subject to the
limitations of the 1940 Act and Maryland law, from among all series of
Preferred Stock then Outstanding and may include any proportion of Series E
Preferred Stock or any other series of Preferred Stock. The amount of
Preferred Stock to be mandatorily redeemed under such circumstances shall, in
the aggregate, equal the lesser of (1) the minimum amount of Preferred Stock
(including the Series E Preferred Stock if so determined by the Corporation)
the redemption of which, if deemed to have occurred immediately prior to the
opening of business on the relevant Cure Date, would result in the Corporation
meeting, as the case may be, the Basic Maintenance Test, Asset Coverage and
any other then applicable maintenance amount test, in each case as of the
relevant Cure Date (provided that, if there is no such minimum amount of
Preferred Stock the redemption of which would have such result, all Series E
Preferred Stock then Outstanding will be redeemed), and (2) the maximum amount
of Preferred Stock that can be redeemed out of funds expected to be available
therefor on the Mandatory Redemption Date at the Mandatory Redemption Price;
provided, that in the event that Preferred Stock is redeemed mandatorily
pursuant to this paragraph 3, the Corporation may, but is not required to,
redeem a sufficient amount of additional shares of Series E Preferred Stock,
which when aggregated with other shares of Preferred Stock redeemed by the
Corporation, permits the Corporation to have (x) Eligible Assets with Adjusted
Value with respect to the Preferred Stock remaining Outstanding of as great as
110% of the Basic Maintenance Amount and (y) Asset Coverage with respect to
the Preferred Stock remaining Outstanding of as much as 220%.
(iii) Subject to the Articles Supplementary establishing each series of Preferred Stock and the 1940 Act, the Corporation may determine the shares and series of Preferred Stock to be redeemed in accordance with the paragraph 3(a)(ii) above, subject to the further provisions of this paragraph 3(a)(iii). The Corporation shall effect any mandatory redemption of Series E Preferred Stock relating to: (A) a failure to meet the Basic Maintenance Test or a failure to meet Asset Coverage, no later than eight days following such Cure Date, provided, that if such eighth day is not a Business Day, such redemption will occur not later than the close of business on the next Business Day or (B) a failure to meet any other then applicable maintenance amount test in accordance with the requirements of such test (in each case the date specified for such redemption being, the "Mandatory Redemption Date"), except that if the Corporation does not have funds legally available for the redemption of, or is not otherwise legally permitted to redeem, the amount of Preferred Stock which would be mandatorily redeemed by the Corporation under subparagraph 3(a)(ii) if sufficient funds were available, or the Corporation otherwise is unable to effect such redemption on or prior to the applicable Mandatory Redemption Date, the Corporation shall redeem on such redemption date the number of shares of Series E Preferred Stock and other Preferred Stock with respect to which it has given notice of redemption as it shall have legally available funds, or is otherwise able, to redeem ratably on the basis of Redemption Price from each holder whose shares are to be redeemed and the remainder of the Series E Preferred Stock and other Preferred Stock which it was unable to redeem on the earliest practicable date on which the Corporation will have such funds available upon notice, in the case of Series E Preferred Stock pursuant to paragraph 3(b) to Holders of shares of Series E Preferred Stock to be redeemed. The Corporation will deposit with the Paying Agent funds sufficient to redeem the specified number of shares of Series E Preferred Stock subject to a redemption under this paragraph 3(a) by 12:00 noon, New York City time, of the Business Day immediately preceding the redemption date. If fewer than all of the Outstanding shares of Series E Preferred Stock are to be redeemed, the number of shares of Series E Preferred Stock to be redeemed shall be redeemed pro rata from the Holders of such shares in proportion to the number of shares of Series E Preferred Stock held by such Holders, by lot or by such other method as the Corporation shall deem fair and equitable, subject, however, to the terms of any applicable Specific Redemption Provisions.
(b) In the event of a redemption of Series E Preferred Stock pursuant
to paragraph 3(a) above, the Corporation will have filed or will file a notice
of its intention to redeem with the Commission, in either case so as to
provide at least the minimum notice required under Rule 23c-2 under the 1940
Act or any successor provision. In addition, the Corporation shall deliver a
notice of redemption to the Auction Agent (the "Notice of Redemption")
containing the information set forth below (i) in the case of an optional
redemption pursuant to paragraph 3(a)(i) above, one Business Day prior to the
giving of notice to the Holders and (ii) in the case of a mandatory redemption
pursuant to paragraph 3(a)(ii) above, on or prior to the 7th day preceding the
Mandatory Redemption Date. The Auction Agent will use its reasonable efforts
to provide telephonic, electronic or written notice to each Holder of any
shares of Series E Preferred Stock called for redemption not later than the
close of business on the Business Day immediately following the day on which
the Corporation determines the shares to be redeemed (or, during a Default
Period with respect to such shares, not later than the close of business on
the Business Day immediately following the day on which the Auction Agent
receives Notice of Redemption from the Corporation). The Auction Agent shall
confirm a telephonic notice in writing not later than the close of business on
the third Business Day preceding the date fixed for redemption by providing
the Notice of Redemption to each Holder of shares called for redemption, the
Paying Agent (if different from the Auction Agent) and the Securities
Depository. Notice of Redemption will be addressed to the Holders of Series E
Preferred Stock at their addresses appearing on the share records of the
Corporation. Such Notice of Redemption will set forth (s) the date fixed for
redemption, (t) the number or percentage of shares of Series E Preferred Stock
to be redeemed, (u) the CUSIP number(s) of such shares, (v) the Redemption
Price (specifying the amount of accumulated dividends to be included therein),
(w) the place or places where such shares are to be redeemed, (x) that
dividends on the shares to be redeemed will cease to accumulate on such date
fixed for redemption, (y) the provision of these Articles Supplementary under
which redemption shall be made, and (z) in the case of a redemption pursuant
to paragraph 3(a)(i), any conditions precedent to such redemption. If fewer
than all the Outstanding shares of Series E Preferred Stock held by any Holder
are to be redeemed, the Notice of Redemption mailed to such Holder shall also
specify the number or percentage of shares of Series E Preferred Stock to be
redeemed from such Holder. No defect in the Notice of Redemption or in the
transmittal or mailing thereof will affect the validity of the redemption
proceedings, except as required by applicable law.
(c) Notwithstanding the provisions of paragraph 3(a), the Corporation shall not redeem shares of Preferred Stock unless all accumulated and unpaid dividends on all Outstanding shares of Series E Preferred Stock and other Preferred Stock ranking on a parity with the Series E Preferred Stock with respect to dividends for all applicable past Dividend Periods (whether or not earned or declared by the Corporation) have been or are contemporaneously paid or declared and Deposit Assets for the payment of such dividends have been deposited with the Paying Agent; provided, however, that the foregoing shall not prevent the purchase or acquisition of outstanding shares of Preferred Stock pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to holders of all Outstanding shares of Series E Preferred Stock.
(d) Upon the deposit of funds sufficient to redeem shares of Series E Preferred Stock with the Paying Agent and the giving of the Notice of Redemption to the Auction Agent under paragraph 3(b) above, such shares shall no longer be deemed to be Outstanding for any purpose (including, without limitation, for purposes of calculating whether the Corporation has met the Basic Maintenance Test or Asset Coverage), and all rights of the Holders of the shares of Series E Preferred Stock so called for redemption shall cease and terminate, except the right of such Holder to receive the applicable Redemption Price, but without any interest or other additional amount. Such Redemption Price shall be paid by the Paying Agent to the nominee of the Securities Depository. The Corporation shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent in excess of (i) the aggregate Redemption Price of the shares of Series E Preferred Stock called for redemption on such date and (ii) such other amounts, if any, to which Holders of the Series E Preferred Stock called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be paid to the Corporation, after which time the Holders of shares of Series E Preferred Stock so called for redemption may look only to the Corporation for payment of the Redemption Price and all other amounts, if any, to which they may be entitled; provided, however, that the Paying Agent shall notify all Holders whose funds are unclaimed by placing a notice in The Wall Street Journal concerning the availability of such funds for three consecutive weeks. The Corporation shall be entitled to receive, from time to time after the date fixed for redemption, any interest earned on the funds so deposited.
(e) A Default Period with respect to the Outstanding shares of Series E Preferred Stock will commence if the Corporation fails to deposit irrevocably in trust in same-day funds, with the Paying Agent by 12:00 noon, New York City time on the Business Day preceding the redemption date specified in the Notice of Redemption (the "Redemption Date") or on such later date as the Paying Agent shall authorize, the full amount of any Redemption Price payable on such Redemption Date (a "Redemption Default"); provided, that no Redemption Default shall be deemed to have occurred in respect of Series E Preferred Stock when the related redemption notice provides that the redemption of such Series E Preferred Stock is subject to one or more conditions precedent and each such condition precedent shall not have been satisfied at the time or times or in the manner specified in such Notice of Redemption. To the extent a Redemption Default occurs with respect to Series E Preferred Stock or that any redemption for which Notice of Redemption has been given is otherwise prohibited, such redemption shall be made as soon as practicable to the extent such funds become legally available or such redemption is no longer otherwise prohibited. Notwithstanding the fact that a Redemption Default has occurred and is continuing or that the Corporation has otherwise failed to redeem shares of Series E Preferred Stock for which a Notice of Redemption has been given, dividends may be declared and if so declared will be paid on Series E Preferred Stock, which shall include those shares of Series E Preferred Stock for which Notice of Redemption has been given but for which deposit of funds has not been made.
(f) All moneys paid to the Paying Agent for payment of the Redemption Price of shares of Series E Preferred Stock called for redemption shall be held in trust by the Paying Agent for the benefit of Holders of the Series E Preferred Stock so to be redeemed. A Redemption Default will occur on account of the Corporation's failure to timely deposit any required Redemption Price with the Paying Agent and any resulting Default Period will end in accordance with paragraph 2(c)(ii).
(g) So long as the Series E Preferred Stock is held of record by the nominee of the Securities Depository, the Redemption Price for such shares will be paid on the date fixed for redemption to the nominee of the Securities Depository for distribution to agent members for distribution to the Persons for whom they are acting as agent.
(h) Except for the provisions described above, nothing contained in these Articles Supplementary limits any right of the Corporation to purchase or otherwise acquire Series E Preferred Stock outside of an Auction at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on, or the Redemption Price with respect to, any shares of Series E Preferred Stock for which Notice of Redemption has been given and the Corporation meets Asset Coverage and the Basic Maintenance Test after giving effect to such purchase or acquisition on the date thereof. Any shares of Series E Preferred Stock which are purchased, redeemed or otherwise acquired by the Corporation shall have no voting rights. If fewer than all the Outstanding shares of Series E Preferred Stock are redeemed or otherwise acquired by the Corporation, the Corporation shall give notice of such transaction to the Auction Agent.
(i) In the case of any redemption pursuant to this paragraph 3, only whole shares of Series E Preferred Stock shall be redeemed, and in the event that any provision of the Charter would require redemption of a fractional share, the Auction Agent shall be authorized to round up so that only whole shares are redeemed.
(j) Notwithstanding anything herein to the contrary, the Board of Directors may authorize, create or issue other series of Preferred Stock ranking on a parity with the Series E Preferred Stock with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation, to the extent permitted by the 1940 Act, if upon issuance of any such series, either (i) the net proceeds from the sale of such stock (or such portion thereof needed to redeem or repurchase the Outstanding shares of Series E Preferred Stock) are deposited with the Auction Agent, Notice of Redemption as contemplated by paragraph 3(b) has been delivered prior thereto or is sent promptly thereafter, and such proceeds are used to redeem all Outstanding shares of Series E Preferred Stock or (ii) the Corporation would meet Asset Coverage, the Basic Maintenance Test and the requirements of paragraph 9 immediately following such issuance and any redemption of Preferred Stock (which may include a portion of the Series E Preferred Stock) to be effected with the proceeds of such issuance.
4. Designation of Dividend Period.
(a) The initial Dividend Period for the Series E Preferred Stock
shall be as determined in the manner under "Designation" above. The
Corporation shall designate the duration of subsequent Dividend Periods of the
Series E Preferred Stock; provided, however, that no such designation shall be
necessary for a Standard Dividend Period and, provided further, that any
designation of a Special Dividend Period for the Series E Preferred shall be
effective only if (i) notice thereof shall have been given as provided herein,
(ii) any failure to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the Redemption Price of, the Series E Preferred
Stock shall have been cured as provided for herein, (iii) Sufficient Clearing
Orders shall have existed in an Auction held for the Series E Preferred Stock
on the Auction Date immediately preceding the first day of such proposed
Special Dividend Period, (iv) if the Corporation shall have mailed a Notice of
Redemption with respect to any shares of Series E Preferred Stock, the
Redemption Price with respect to such shares shall have been deposited with
the Paying Agent and (v) the Corporation has confirmed that as of the Auction
Date next preceding the first day of such Special Dividend Period, it has
Eligible Assets with an aggregate Discounted Value at least equal to the Basic
Maintenance Amount, and the Corporation has consulted with the Broker-Dealers
and has provided notice of such designation and a Basic Maintenance Report to
each Rating Agency.
(b) If the Corporation proposes to designate any Special Dividend Period, not fewer than seven Business Days (or two Business Days in the event the duration of the Dividend Period prior to such Special Dividend Period is fewer than ten Business Days) nor more than 30 Business Days prior to the first day of such Special Dividend Period, notice shall be (i) made by press release and (ii) communicated by the Corporation by telephonic or other means to the Auction Agent and confirmed in writing promptly thereafter. Each such notice shall state (x) that the Corporation proposes to exercise its option to designate a succeeding Special Dividend Period, specifying the first and last days thereof and (y) that the Corporation will by 3:00 P.M., New York City time, on the second Business Day next preceding the first day of such Special Dividend Period, notify the Auction Agent, who will promptly notify the Broker-Dealers, of either (A) its determination, subject to certain conditions, to proceed with such Special Dividend Period, subject to the terms of any Specific Redemption Provisions, or (B) its determination not to proceed with such Special Dividend Period, in which latter event the succeeding Dividend Period shall be a Standard Dividend Period. No later than 3:00 P.M., New York City time, on the second Business Day next preceding the first day of any proposed Special Dividend Period, the Corporation shall deliver to the Auction Agent, who will promptly deliver to the Broker-Dealers and Existing Holders, either:
(1) a notice stating (a) that the Corporation has determined to
designate the next succeeding Dividend Period as a Special Dividend Period,
(b) the first and last days thereof and (c) the terms of any Specific
Redemption Provisions; or
(2) a notice stating that the Corporation has determined not to exercise its option to designate a Special Dividend Period.
If the Corporation fails to deliver either such notice with respect to the designation of any proposed Special Dividend Period to the Auction Agent or is unable to make the confirmation provided in paragraph 4(a)(v) by 3:00 P.M., New York City time, on the second Business Day next preceding the first day of such proposed Special Dividend Period, the Corporation shall be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in clause (2) above, thereby resulting in a Standard Dividend Period.
5. Restrictions on Transfer.
Series E Preferred Stock may be transferred only (a) pursuant to an Order placed in an Auction, (b) to or through a Broker-Dealer or (c) to the Corporation or any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless the selling Existing Holder or the Agent Member of such Existing Holder (in the case of an Existing Holder whose shares are listed in its own name on the books of the Auction Agent), or the Broker-Dealer or Agent Member of such Broker-Dealer (in the case of a transfer between persons holding shares of any Series E Preferred Stock through different Broker-Dealers), advises the Auction Agent of such transfer. Any certificates representing Series E Preferred Stock issued to the Securities Depository will bear legends with respect to the restrictions described above and stop-transfer instructions will be issued to the Transfer Agent and/or Registrar.
6. Voting Rights.
(a) General.
Except as otherwise provided by law or as specified in the Charter, each Holder of Series E Preferred Stock and any other Preferred Stock shall be entitled to one vote for each share held on each matter submitted to a vote of stockholders of the Corporation, and the Holders of Outstanding shares of Preferred Stock and Common Stock shall vote together as a single class; provided, however, that at any meeting of the stockholders of the Corporation held for the election of directors, the Holders of Outstanding shares of Preferred Stock, including the Series E Preferred Stock, shall be entitled, as a class, to the exclusion of the Holders of all other securities and classes of capital stock of the Corporation, to elect a number of Corporation's directors, such that following the election of directors at the meeting of the stockholders, the Corporation's Board of Directors shall contain two directors elected by the Holders of the Outstanding shares of Preferred Stock as a class. Subject to paragraph 6(b), the Holders of outstanding shares of capital stock of the Corporation, including the Holders of Outstanding shares of Preferred Stock, including Series E Preferred Stock, voting as a single class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors.
During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number of additional directors that, when added to the two directors elected exclusively by the Holders of shares of Preferred Stock pursuant to paragraph 6(a) above, would constitute a majority of the Board of Directors as so increased by such smallest number; and the Holders of shares of Preferred Stock shall be entitled, voting separately as one class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), to elect such smallest number of additional directors, together with the two directors that such Holders are in any event entitled to elect pursuant to paragraph 6(a) above. The Corporation and the Board of Directors shall take all necessary action, including amending the Corporation's bylaws, to effect an increase in the number of directors as described in the preceding sentence. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the Outstanding Series E Preferred Stock equal to at least two full years' dividends shall have become due and unpaid and sufficient cash or specified securities shall not have been deposited with the Paying Agent for the payment in full of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Stock are entitled to elect a majority of the directors of the Corporation under the 1940 Act or the Articles Supplementary creating such shares.
Upon the termination of a Voting Period, the voting rights described in this paragraph 6(b) shall cease, subject always, however, to the reverting of such voting rights in the holders of Preferred Stock upon the further occurrence of any of the events described in this paragraph 6(b).
(c) Right to Vote with Respect to Certain Other Matters.
So long as the Series E Preferred Stock is Outstanding, the
Corporation shall not, without the affirmative vote of the holders of a
majority of the shares of Preferred Stock Outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to materially adversely
affect any of the contract rights expressly set forth in the Charter of
Holders of Series E Preferred Stock or any other Preferred Stock. To the
extent permitted under the 1940 Act, in the event shares of more than one
series of Preferred Stock are Outstanding, the Corporation shall not effect
any of the actions set forth in the preceding sentence which materially
adversely affects the contract rights expressly set forth in the Charter of a
Holder of shares of a series of Preferred Stock differently than those of a
Holder of shares of any other series of Preferred Stock without the
affirmative vote of the Holders of at least a majority of the shares of
Preferred Stock of each series materially adversely affected and Outstanding
at such time (each such materially adversely affected series voting separately
as a class to the extent its rights are affected differently). The Corporation
shall notify each Rating Agency ten Business Days prior to any such vote
described above. Unless a higher percentage is provided for under the Charter
or applicable provisions of the Maryland General Corporation Law, the
affirmative vote of the Holders of a majority of the Outstanding shares of
Preferred Stock, including the Series E Preferred Stock, voting together as a
single class, will be required to approve any plan of reorganization adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. For purposes of this paragraph 6(c), the phrase
"vote of the Holders of a majority of the Outstanding shares of Preferred
Stock" (or any like phrase) shall mean, in accordance with Section 2(a)(42) of
the 1940 Act, the vote, at the annual or a special meeting of the stockholders
of the Corporation duly called (A) of 67 percent or more of the shares of
Preferred Stock present at such meeting, if the Holders of more than 50
percent of the Outstanding shares of Preferred Stock are present or
represented by proxy; or (B) of more than 50 percent of the Outstanding shares
of Preferred Stock, whichever is less. The class vote of Holders of shares of
Preferred Stock described above will in each case be in addition to a separate
vote of the requisite percentage of shares of Common Stock and shares of
Preferred Stock, including the Series E Preferred Stock, voting together as a
single class, necessary to authorize the action in question. An increase in
the number of authorized shares of Preferred Stock pursuant to the Charter or
the issuance of additional shares of any series of Preferred Stock (including
the Series E Preferred Stock) pursuant to the Charter shall not in and of
itself be considered to adversely affect the contract rights of the Holders of
Preferred Stock. The provisions of this paragraph 6(c) are subject to the
provisions of paragraph 10.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the Holders of shares of Preferred Stock, including the Series E Preferred Stock, to elect additional directors as described in paragraph 6(b), the Corporation shall call a special meeting of such Holders and instruct the Auction Agent to mail a notice of such special meeting to the Holders of Series E Preferred Stock, such meeting to be held not less than 10 nor more than 20 days after the date of mailing of such notice. If the Corporation fails to send such notice to the Auction Agent or if the Corporation does not call such a special meeting, it may be called by any such Holder on like notice. The record date for determining the Holders entitled to notice of and to vote at such special meeting shall be the close of business on the day on which such notice is mailed or such other day as the Board of Directors shall determine. At any such special meeting and at each meeting held during a Voting Period, such Holders of Preferred Stock, voting together as a class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be entitled to elect the number of directors prescribed in paragraph 6(b) on a one-vote-per-share basis. At any such meeting or adjournment thereof in the absence of a quorum, a majority of the Holders of shares of Preferred Stock, including the Series E Preferred Stock, present in person or by proxy shall have the power to adjourn the meeting without notice, other than an announcement at the meeting, until a date not more than 90 days after the original record date.
(ii) For purposes of determining any rights of the Holders of the shares of Preferred Stock, including the Series E Preferred Stock, to vote on any matter, whether such right is created by these Articles Supplementary, by the other provisions of the Charter, by statute or otherwise, a share of Series E Preferred Stock which is not Outstanding shall not be counted.
(iii) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of Holders of Preferred Stock, including the Series E Preferred Stock, to elect directors shall continue, notwithstanding the election at such meeting by such Holders of the number of directors that they are entitled to elect, and the persons so elected by such Holders, together with the two incumbent directors elected by the Holders of Preferred Stock, including the Series E Preferred Stock, and the remaining incumbent directors elected by the holders of the Common Stock and Preferred Stock, shall constitute the duly elected directors of the Corporation.
(iv) Upon the expiration of a Voting Period, the terms of office of
the additional directors elected by the Holders of Preferred Stock pursuant to
paragraph 6(b) above shall expire at the earliest time permitted by law and
the remaining directors shall constitute the directors of the Corporation and
the voting rights of such Holders of Preferred Stock, including Series E
Preferred Stock, to elect additional directors pursuant to paragraph 6(b)
above shall cease, subject to the provisions of the last sentence of paragraph
6(b). Upon the expiration of the terms of the directors elected by the holders
of Preferred Stock pursuant to paragraph 6(b) above, the number of directors
shall be automatically reduced to the number and composition of directors on
the Board immediately preceding such Voting Period.
(e) Exclusive Remedy.
Unless otherwise required by law, the Holders of Series E Preferred Stock shall not have any rights or preferences other than those specifically set forth herein. The Holders of Series E Preferred Stock shall have no preemptive rights or rights to cumulative voting. In the event that the Corporation fails to pay any dividends on the Series E Preferred Stock, the exclusive remedy of the Holders shall be the right to vote for directors pursuant to the provisions of this paragraph 6.
(f) Notification to Rating Agency.
In the event a vote of Holders of Preferred Stock is required pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the Series E Preferred Stock is rated by a Rating Agency at the request of the Corporation, the Corporation shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify each Rating Agency that such vote is to be taken and the nature of the action with respect to which such vote is to be taken and, not later than ten Business Days after the date on which such vote is taken, notify each Rating Agency of the result of such vote.
7. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders of Series E Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, after claims of creditors but before any distribution or payment shall be made in respect of the Common Stock or any other stock of the Corporation ranking junior to the Series E Preferred Stock as to liquidation payments, a liquidation distribution in the amount of $25,000.00 per share (the "Liquidation Preference"), plus an amount equal to all unpaid dividends accumulated to and including the date fixed for such distribution or payment (whether or not earned or declared by the Corporation, but excluding interest thereon), and such Holders shall be entitled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the assets of the Corporation available for distribution among the Holders of all Outstanding shares of Series E Preferred Stock, and any other Outstanding class or series of Preferred Stock ranking on a parity with the Series E Preferred Stock as to payment upon liquidation, shall be insufficient to permit the payment in full to such Holders of Series E Preferred Stock of the Liquidation Preference plus accumulated and unpaid dividends and the amounts due upon liquidation with respect to such other Preferred Stock, then such available assets shall be distributed among the Holders of Series E Preferred Stock and such other Preferred Stock ratably in proportion to the respective preferential amounts to which they are entitled. Unless and until the Liquidation Preference plus accumulated and unpaid dividends has been paid in full to the Holders of shares of Series E Preferred Stock, no dividends or distributions will be made to holders of shares of the Common Stock or any other stock of the Corporation ranking junior to the Series E Preferred Stock as to liquidation.
8. Auction Agent.
For so long as shares of the Series E Preferred Stock are Outstanding, the Auction Agent, duly appointed by the Corporation to so act, shall be in each case a commercial bank, trust company or other financial institution independent of the Corporation and its Affiliates (which, however, may engage or have engaged in business transactions with the Corporation or its Affiliates) and at no time shall the Corporation or any of its Affiliates act as the Auction Agent in connection with the Auction Procedures. If the Auction Agent resigns or for any reason its appointment is terminated during any period that any shares of Series E Preferred Stock are Outstanding, the Corporation shall use its best efforts promptly thereafter to appoint another qualified commercial bank, trust company or financial institution to act as the Auction Agent.
9. Coverage Tests.
(a) Determination of Compliance.
For so long as shares of the Series E Preferred Stock are Outstanding, the Corporation shall make the following determinations:
(i) Asset Coverage as follows:
(A) As of each Quarterly Valuation Date, the Corporation shall determine whether Asset Coverage is met as of that date. In the event the Corporation determines that it has failed to meet Asset Coverage as of such Quarterly Valuation date, the Corporation will notify each Rating Agency of such failure in writing (which notification may be by facsimile or other electronic means) on or before 5:00 P.M., New York City time, on the fifth Business Day following the date of such determination.
(B) The Corporation shall deliver to each Rating Agency an "Asset Coverage Certificate" which sets forth the determination of paragraph 9(a)(i)(A) above (1) as of the Date of Original Issue and, thereafter, (2) as of (x) each Quarterly Valuation Date and (y) a Business Day on or before any Series E Asset Coverage Cure Date following a failure to meet Asset Coverage. Such Asset Coverage Certificate shall be delivered in the case of clause (1) on the Date of Original Issue and in the case of clause (2) on or before the seventh Business Day following such Quarterly Valuation Date or the relevant Cure Date, as the case may be.
(ii) Basic Maintenance Amount as follows:
(A) For so long as the Series E Preferred Stock is rated by Moody's and/or S&P at the Corporation's request, the Corporation shall maintain, on each Valuation Date, Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, as of such Valuation Date. Upon any failure to maintain Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, the Corporation shall use all commercially reasonable efforts to re-attain Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount on or prior to the Basic Maintenance Amount Cure Date, by altering the composition of its portfolio or otherwise.
(B) On or before 5:00 P.M., New York City time, on the fifth Business Day after a Valuation Date on which the Corporation fails to satisfy the Basic Maintenance Amount, and on the fifth Business Day after the Basic Maintenance Amount Cure Date with respect to such Valuation Date, the Corporation shall complete and deliver to each Rating Agency a Basic Maintenance Report as of the date of such failure or such Basic Maintenance Amount Cure Date, as the case may be, which will be deemed to have been delivered to such Rating Agency if such Rating Agency receives a copy or facsimile or other electronic transcription or transmission thereof and on the same day the Corporation mails or sends to such Rating Agency for delivery on the next Business Day the full Basic Maintenance Report. The Corporation shall also deliver a Basic Maintenance Report to each Rating Agency as of any Annual Valuation Date, in each case on or before the fifth Business Day after such day. A failure by the Corporation to deliver a Basic Maintenance Report pursuant to the preceding sentence shall be deemed to be delivery of a Basic Maintenance Report indicating the Discounted Value for all assets of the Corporation is less than the Basic Maintenance Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery of a Basic Maintenance Report in accordance with paragraph 9(a)(ii)(B) relating to any Annual Valuation Date, the Corporation shall cause the Independent Accountant to send an Accountant's Confirmation to each Rating Agency with respect to such Basic Maintenance Report.
(D) Within ten Business Days after the date of delivery of a Basic Maintenance Report in accordance with paragraph 9(a)(ii)(B) relating to each, if any, Valuation Date on which the Corporation failed to satisfy the Basic Maintenance Amount and the Basic Maintenance Amount Cure Date with respect to such failure to satisfy the Basic Maintenance Amount, the Corporation shall cause the Independent Accountant to provide to each Rating Agency an Accountant's Confirmation as to such Basic Maintenance Report.
(E) If any Accountant's Confirmation delivered pursuant to paragraph
(C) or (D) of this paragraph 9(a)(ii) does not agree with the Corporation's
calculation of the Basic Maintenance Report for a particular Valuation Date
for which such Accountant's Confirmation was required to be delivered, or
shows that a lower aggregate Discounted Value for the aggregate Eligible
Assets in respect of any Rating Agency than was determined by the Corporation,
the calculation or determination made by such Independent Accountant shall be
final and conclusive and shall be binding on the Corporation, and the
Corporation shall accordingly amend and deliver the Basic Maintenance Report
to the relevant Rating Agency promptly following receipt by the Corporation of
such Accountant's Confirmation.
(F) On or before 5:00 p.m., New York City time, on the fifth Business Day after the Date of Original Issue of Series E Preferred Stock, the Corporation shall complete and deliver to each Rating Agency a Basic Maintenance Report as of the close of business on such Date of Original Issue.
(G) On or before 5:00 p.m., New York City time, on the fifth Business Day after either (1) the Corporation shall have redeemed Series E Preferred Stock or (2) the ratio of the Discounted Value of Eligible Assets in respect of any Rating Agency to the Basic Maintenance Amount is less than or equal to 110%, the Corporation shall complete and deliver to each Rating Agency a Basic Maintenance Report as of the date of either such event.
(b) Failure to Meet Asset Coverage Requirements.
If the Corporation fails to have Asset Coverage as provided in paragraph 9(a)(i)(A) or to have Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount as provided in paragraph 9(a)(ii)(A) and such failure is not cured by the applicable Cure Date, Preferred Stock, which at the Corporation's determination (to the extent permitted by the 1940 Act and Maryland law) may include any proportion of Series E Preferred Stock, will be subject to mandatory redemption as set forth in paragraph 3.
(c) Status of Series E Preferred Stock Called for redemption.
For purposes of determining whether the requirements of paragraphs 9(a)(i)(A) and 9(a)(ii)(A) hereof are satisfied, (i) no share of the Series E Preferred Stock or other Preferred Stock shall be deemed to be Outstanding for purposes of any computation if, prior to or concurrently with such determination, sufficient Deposit Assets to pay the full Redemption Price for such share shall have been deposited in trust with the Paying Agent (or applicable dividend-disbursing agent) and the requisite Notice of Redemption shall have been given, and (ii) such Deposit Assets deposited with the Paying Agent (or dividend-disbursing agent) shall not be included.
(d) Certain Notifications Relating to Market Value.
In the event the Market Value of an Eligible Asset is determined pursuant to clause (a)(i) of the definition of Market Value set forth in paragraph 13, the Corporation shall promptly inform each Rating Agency in writing (which notice may be by facsimile or other electronic means) of the basis upon which the Market Value of such Eligible Asset was determined.
10. Certain Other Restrictions.
(a) For so long as the shares of Series E Preferred are rated by a Rating Agency at the Corporation's request, the Corporation will not, and will cause the Adviser not to, (i) knowingly and willfully purchase or sell any asset for the specific purpose of causing, and with the actual knowledge that the effect of such purchase or sale will be to cause, the Corporation to have Eligible Assets having an Adjusted Value as of the date of such purchase or sale to be less than the Basic Maintenance Amount as of such date, (ii) in the event that, as of the immediately preceding Valuation Date, the Adjusted Value of the Corporation's Eligible Assets exceeded the Basic Maintenance Amount by 5% or less, alter the composition of the Corporation's assets in a manner reasonably expected to reduce the Adjusted Value of the Corporation's Eligible Assets, unless the Corporation shall have confirmed that, after giving effect to such alteration, the Adjusted Value of the Corporation's Eligible Assets exceeded the Basic Maintenance Amount or (iii) declare or pay any dividend or other distribution on any Common Stock or repurchase any Common Stock, unless the Corporation shall have confirmed that, after giving effect to such declaration, other distribution or repurchase, the Corporation continued to satisfy the requirements of paragraph 9(a)(ii).
(b) For so long as the shares of Series E Preferred Stock are rated by any Rating Agency at the Corporation's request, unless the Corporation shall have received written confirmation from each such Rating Agency, the Corporation may engage in the lending of its portfolio securities only in an amount of up to 20% of the Corporation's total assets, provided that the Corporation receives cash collateral for such loaned securities that is maintained at all times in an amount equal to at least 100% of the then current market value of the loaned securities and, if invested, is invested only in Short-Term Money Market Instruments or in money market mutual funds meeting the requirements of Rule 2a-7 under the 1940 Act that maintain a constant $1.00 per share net asset value and treat the loaned securities rather than the collateral as the assets of the Corporation for purposes of determining compliance with paragraph 9.
(c) For so long as the shares of Series E Preferred Stock are rated by Rating Agency at the Corporation's request, the Corporation shall not consolidate with, merge into, sell or otherwise transfer all or substantially all of its assets to another Person or adopt a plan of liquidation of the Corporation, in each case without providing prior written notification to each Rating Agency.
11. Limitation on Incurrence of Additional Indebtedness, Certain Transactions and Issuance of Additional Preferred Stock
(a) So long as the shares of Series E Preferred Stock are
Outstanding, the Corporation may issue and sell one or more series of a class
of senior securities of the Corporation representing indebtedness under
Section 18 of the 1940 Act and/or otherwise create or incur indebtedness,
provided that immediately after giving effect to the incurrence of such
indebtedness and to its receipt and application of the proceeds thereof, the
Corporation shall have an "asset coverage" for all senior securities
representing indebtedness, as defined in Section 18(h) of the1940 Act, of at
least 300% of the amount of all indebtedness of the Corporation then
Outstanding and no such additional indebtedness shall have any preference or
priority over any other indebtedness of the Corporation upon the distribution
of the assets of the Corporation upon the distribution of the assets of the
Corporation or in respect of the payment of interest. Any possible liability
resulting from lending and/or borrowing portfolio securities, entering into
reverse repurchase agreements, entering into futures contracts and writing
options, to the extent such transactions are made in accordance with the
investment restrictions of the Corporation then in effect, shall not be
considered to be indebtedness limited by this paragraph 11(a).
(b) So long as any shares of Series E Preferred Stock are Outstanding and S&P is rating such Series E Preferred Stock at the Corporation's request, the Corporation will not, unless it has received written confirmation that any such transaction would not impair the rating then assigned by S&P to such Series E Preferred Stock, engage in any one or more of the following transactions:
(i) purchase or sell futures contracts; write, purchase or sell options on futures contracts; or write put options (except covered put options) or call options (except covered call options) on securities owned by the Corporation (collectively, "S&P Hedging Transactions"), except subject to the following limitations:
(A) for each net long or short position in S&P Hedging Transactions, the Corporation will maintain segregated assets with the Corporation's custodian or with the counterparty to such S&P Hedging Transaction an amount of cash or readily marketable securities having a value, when added to any amounts on deposit with the Corporations's futures commission merchants or brokers as margin or premium for such position, at least equal to the market value of the Corporation's potential obligations on such position, marked-to-market on a daily basis, in each case as and to the extent required by the applicable rules or orders of the Commission or by interpretations of the Commission's staff;
(B) the Corporation will not engage in any S&P Hedging Transaction which would cause the Corporation at the time of such transaction to own or have sold the lesser of (1) outstanding futures contracts, in aggregate, based on the Standard & Poor's 500 Index, the Dow Jones Industrial Average, the Russell 2000 Index, the Wilshire 5000 Index, the Nasdaq Composite Index and the New York Stock Exchange Composite Index (or any component of any of the forgoing) exceeding in number 50% of the market value of the Corporation's total assets or (2) outstanding futures contracts based on any of the aforementioned indices exceeding in number 10% of the average number of daily traded futures contracts based on such index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal;
(C) the Corporation will engage in closing transactions to
close out any outstanding futures contract which the Corporation owns or has
sold or any outstanding option thereon owned by the Corporation in the event
(1) the Corporation does not have S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the Basic Maintenance Amount on two
consecutive Valuation Dates and (2) the Corporation is required to pay
variation margin on the second such Valuation Date;
(D) the Corporation will engage in a closing transaction to close out any outstanding futures contract or option thereon at least one week prior to the delivery date under the terms of the futures contract or option thereon unless the Corporation holds the securities deliverable under such terms; and
(E) when the Corporation writes a futures contract or option thereon, either the amount of margin posted by the Corporation (in the case of a futures contract) or the marked-to-market value of the Corporation's obligation (in the case of a put option written by the Corporation) shall be treated as a liability of the Corporation for purposes of calculating the Basic Maintenance Amount, or, in the event the Corporation writes a futures contract or option thereon which requires delivery of an underlying security and the Corporation does not wish to treat its obligations with respect thereto as a liability for purposes of calculating the Basic Maintenance Amount, it shall hold such underlying security in its portfolio and shall not include such security to the extent of such contract or option as an S&P Eligible Asset.
(ii) borrow money, except for the purpose of clearing securities transactions if (A) the Basic Maintenance Amount would continue to be satisfied after giving effect to such borrowing and (B) such borrowing (1) is privately arranged with a bank or other person and is not intended to be publicly distributed or (2) is for "temporary purposes," and is in an amount not exceeding 5 percent of the market value of the total assets of the Corporation at the time of the borrowing; for purposes of the foregoing, "temporary purposes" means that the borrowing is to be repaid within sixty days and is not to be extended or renewed;
(iii) engage in any short sales of equity securities (other than short sales against the box) unless the Corporation maintains segregated assets with the Corporation's custodian in an amount of cash or other readily marketable securities having a market value, when added to any amounts on deposit with the Corporation's broker as collateral for its obligation to replace the securities borrowed and sold short, at least equal to the current market value of securities sold short, marked-to-market on a daily basis;
(iv) utilize any pricing service other than a Pricing Service or such other pricing service then permitted by S&P; or
(v) enter into any reverse repurchase agreement, other than with a counterparty that is rated at least A-1+ by S&P.
(c) So long as the shares Series E Preferred Stock are Outstanding, the Corporation may issue and sell shares of one or more other series of Preferred Stock constituting a series of a class of senior securities of the Corporation representing stock under Section 18 of the 1940 Act in addition to the Series E Preferred Stock and other Preferred Stock then Outstanding, provided that (i) the Corporation shall, immediately after giving effect to the issuance of such additional shares of Preferred Stock and to its receipt and application of the proceeds thereof (including, without limitation, to the Redemption of Preferred Stock for which a Notice of Redemption has been mailed prior to such issuance), have an "asset coverage" for all senior securities which are stock, as defined in Section 18(h) of the 1940 Act, of at least 200% of the Series E Preferred Stock and all other Preferred Stock of the Corporation then Outstanding, and (ii) no such additional Preferred Stock (including any additional Series E Preferred Stock) shall have any preference or priority over any other Preferred Stock of the Corporation upon the distribution of the assets of the Corporation or in respect of the payment of dividends.
12. Termination.
In the event that no shares of Series E Preferred Stock are Outstanding, all rights and preferences of such shares established and designated hereunder shall cease and terminate, and all obligations of the Corporation under these Articles Supplementary shall terminate.
13. Definitions.
Unless the context or use indicates another or different meaning or intent, each of the following terms when used in these Articles Supplementary shall have the meaning ascribed to it below, whether such term is used in the singular or plural and regardless of tense:
"'AA' Financial Composite Commercial Paper Rate" on any date means
(i) the interest equivalent of the 7-day rate, in the case of a Dividend Period of seven days or shorter; for Dividend Periods greater than 7 days but fewer than or equal to 31 days, the 30-day rate; for Dividend Periods greater than 31 days but fewer than or equal to 61 days, the 60-day rate; for Dividend Periods greater than 61 days but fewer than or equal to 91 days, the 90 day rate; for Dividend Periods greater than 91 days but fewer than or equal to 270 days, the rate described in (ii) below; for Dividend Periods greater than 270 days, the Treasury Index Rate; on commercial paper on behalf of issuers whose corporate bonds are rated "AA" by S&P, or the equivalent of such rating by another nationally recognized rating agency, as announced by the Federal Reserve Bank of New York for the close of business on the Business Day immediately preceding such date; or (ii) if the Federal Reserve Bank of New York does not make available such a rate, then the arithmetic average of the interest equivalent of such rates on commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by the Commercial Paper Dealers to the Auction Agent for the close of business on the Business Day immediately preceding such date (rounded to the next highest .001 of 1%). If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Financial Composite Commercial Paper Rate, such rate shall be determined on the basis of the quotations (or quotation) furnished by the remaining Commercial Paper Dealers (or Dealer), if any, or, if there are no such Commercial Paper Dealers, by the Auction Agent pursuant to instructions from the Corporation. For purposes of this definition, (A) "Commercial Paper Dealers" shall mean (1) Citigroup Capital Markets, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.; (2) in lieu of any thereof, its respective Affiliate or successor; and (3) in the event that any of the foregoing shall cease to quote rates for commercial paper of issuers of the sort described above, in substitution therefor, a nationally recognized dealer in commercial paper of such issuers then making such quotations selected by the Corporation, and (B) "interest equivalent" of a rate stated on a discount basis for commercial paper of a given number of days' maturity shall mean a number equal to the quotient (rounded upward to the next higher one-thousandth of 1%) of (1) such rate expressed as a decimal, divided by (2) the difference between (x) 1.00 and (y) a fraction, the numerator of which shall be the product of such rate expressed as a decimal, multiplied by the number of days in which such commercial paper shall mature and the denominator of which shall be 360.
"Accountant's Confirmation" means a letter from an Independent Accountant delivered to each Rating Agency with respect to certain Basic Maintenance Reports substantially to the effect that:
(a) the Independent Accountant has read the Basic Maintenance Report or Reports prepared by the Administrator during the referenced calendar year that are referred to in such letter;
(b) with respect to the issue size compliance, issuer diversification and industry diversification calculations, such calculations and the resulting Market Value of the relevant Eligible Assets included in the Reports and the Adjusted Value of the such Eligible Assets included in the Reports are numerically correct;
(c) with respect to the excess or deficiency of the Adjusted Value of the relevant Eligible Assets included in the Reports when compared to the Basic Maintenance Amount calculated for such Rating Agency the results of the calculation set forth in the Reports have been recalculated and are numerically correct;
(d) with respect to the Rating Agency ratings on corporate evidences of indebtedness, convertible corporate evidences of indebtedness and preferred stock listed in the Reports, that information has been traced and agrees with the information provided directly or indirectly by the respective Rating Agencies (in the event such information does not agree or such information is not listed in the accounting records of the Corporation, the Independent Accountants will inquire of the Rating Agencies what such information is and provide a listing in their letter of such differences, if any);
(e) with respect to issuer name and coupon or dividend rate listed in the Reports, that information has been traced and agrees with information listed in the accounting records of the Corporation;
(f) with respect to issue size listed in the Reports, that information has been traced and agrees with information provided by a Pricing Service or such other services as the relevant Rating Agency may authorize from time to time;
(g) with respect to the prices (or alternative permissible factors used in calculating the Market Value as provided by these Articles Supplementary) provided by the Administrator of the Corporation's assets for purposes of valuing securities in the portfolio, the Independent Accountant has traced the price used in the Reports to the price provided by such Administrator (in accordance with the procedures provided in these Articles Supplementary) and verified that such information agrees (in the event such information does not agree, the Independent Accountants will provide a listing in their letter of such differences); and
(h) with respect to the description of each security included in the Reports, the description of the relevant Eligible Assets has been compared to the definition of such Rating Agency's Eligible Assets contained in these Articles Supplementary, and the description as appearing in the Reports agrees with the definition of such Rating Agency's Eligible Assets as described in these Articles Supplementary.
Each such letter may state that: (i) such Independent Accountant has made no independent verification of the accuracy of the description of the investment securities listed in the Reports or the Market Value of those securities nor has it performed any procedures other than those specifically outlined above for the purposes of issuing such letter; (ii) unless otherwise stated in the letter, the procedures specified therein were limited to a comparison of numbers or a verification of specified computations applicable to numbers appearing in the Reports and the schedule(s) thereto; (iii) the foregoing procedures do not constitute an examination in accordance with generally accepted auditing standards and the Reports contained in the letter do not extend to any of the Corporation's financial statements taken as a whole; (iv) such Independent Accountant does not express an opinion as to whether such procedures would enable such Independent Accountant to determine that the methods followed in the preparation of the Reports would correctly determine the Market Value or Discounted Value of the investment portfolio; and (v) accordingly, such Independent Accountant expresses no opinion as to the information set forth in the Reports or in the schedule(s) thereto and makes no representation as to the sufficiency of the procedures performed for the purposes of these Articles Supplementary; and such other statements as are acceptable to the Rating Agencies.
Such letter shall also state that the Independent Accountant is an "independent accountant" with respect to the Corporation within the meaning of the 1933 Act and the related published rules and regulations thereunder.
"Adjusted Value" of each Eligible Asset shall be computed as follows:
(a) cash shall be valued at 100% of the face value thereof; and
(b) all other Eligible Assets shall be valued at the applicable Discounted Value thereof; and
(c) each asset that is not an Eligible Asset shall be valued at zero.
"Administrator" means the other party to the Administration Agreement with the Corporation, which shall initially be Gabelli Funds, LLC, a New York limited liability company, and will include, as appropriate, any sub-administrator appointed by the Administrator.
"Advance Rate" means (a) so long as S&P is rating the Series E Preferred Stock at the Corporation's request, the Advance Rates set forth in the definition of S&P Rating Factor or (b) any applicable advance rate established by any Other Rating Agency, whichever is applicable.
"ADRs" means U.S. dollar-denominated American Depository Receipts.
"Adviser" means Gabelli Funds, LLC, a New York limited liability company, or such other Person that is then serving as the investment adviser of the Corporation.
"Affiliate" means, with respect to the Auction Agent, any person known to the Auction Agent to be controlled by, in control of or under common control with the Corporation; provided, however, that no Broker-Dealer controlled by, in control of or under common control with the Corporation shall be deemed to be an Affiliate nor shall any corporation or any Person controlled by, in control of or under common control with such corporation, one of the directors or executive officers of which is a director of the Corporation be deemed to be an Affiliate solely because such director or executive officer is also a director of the Corporation.
"All Hold Rate" means 80% of the "AA" Financial Composite Commercial Paper Rate.
"Annual Valuation Date" means the Valuation Date each calendar year so designated by the Corporation, commencing in the calendar year 2003.
"Applicable Rate" means, with respect to the Series E Preferred Stock, for each Dividend Period (i) if Sufficient Clearing Bids exist for the Auction in respect thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist for the Auction in respect thereof, or an Auction does not take place with respect to such Dividend Period because of the commencement of a Default Period, the Maximum Rate and (iii) if all shares of Series E Preferred Stock are the subject of Submitted Hold Orders for the Auction in respect thereof, the All Hold Rate.
"Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Corporation which are stock, including all Outstanding shares of Series E Preferred Stock (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its common stock), determined on the basis of values calculated as of a time within 48 hours (not including Saturdays, Sundays or holidays) next preceding the time of such determination.
"Asset Coverage Certificate" means the certificate required to be delivered by the Corporation pursuant to paragraph 9(a)(i)(B) of Article I of these Articles Supplementary.
"Auction" means each periodic operation of the Auction Procedures.
"Auction Agent" means The Bank of New York unless and until another commercial bank, trust company, or other financial institution appointed by a resolution of the Board of Directors enters into an agreement with the Corporation to follow the Auction Procedures for the purpose of determining the Applicable Rate.
"Auction Date" means the last day of the initial Dividend Period and each seventh day after the immediately preceding Auction Date; provided, however, that if any such seventh day is not a Business Day, such Auction Date shall be the first preceding day that is a Business Day and the next Auction Date, if for a Standard Dividend Period, shall (subject to the same advancement procedure) be the seventh day after the date that the preceding Auction Date would have been if not for the advancement procedure; provided further, however, that the Auction Date for the Auction at the conclusion of any Special Dividend Period shall be the last Business Day in such Special Dividend Period and that no more than one Auction shall be held during any Dividend Period; provided further, however, that the Auction Date following a Default Period shall be the last Business Day in the Standard Dividend Period that commenced during such Default Period. Notwithstanding the foregoing, in the event an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, then the length of the then current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events).
"Auction Procedures" means the procedures for conducting Auctions as set forth in Article II of these Articles Supplementary.
"Basic Maintenance Amount" means, with respect to the Series E
Preferred Stock, as of any Monthly Valuation Date, the dollar amount equal to
(a) the sum of (i) the product of the number of shares of each class or series
of Preferred Stock Outstanding on such Valuation Date multiplied, in the case
of each such series or class, by the per share Liquidation Preference
applicable to each such series or class; (ii) to the extent not included in
(i) the aggregate amount of cash dividends (whether or not earned or declared)
that will have accumulated for each Outstanding share of Preferred Stock from
the most recent applicable dividend payment date to which dividends have been
paid or duly provided for (or, in the event the Basic Maintenance Amount is
calculated on a date prior to the initial Dividend Payment Date with respect
to a class or series of the Preferred Stock, then from the Date of Original
Issue of such shares) through the Valuation Date plus all dividends to
accumulate on the Preferred Stock then Outstanding during the 70 days
following such Valuation Date or, if less, during the number of days following
such Valuation Date that shares of Preferred Stock called for redemption are
scheduled to remain Outstanding at the applicable rate or default rate then in
effect with respect to such shares; (iii) the Corporation's other liabilities
due and payable as of such Valuation Date (except that dividends and other
distributions payable by the Corporation on Common Stock shall not be included
as a liability) and such liabilities projected to become due and payable by
the Corporation during the 90 days following such Valuation Date (excluding
liabilities for investments to be purchased and for dividends and other
distributions not declared as of such Valuation Date); and (iv) any current
liabilities of the Corporation as of such Valuation Date to the extent not
reflected in (or specifically excluded by) any of (a)(i) through (a)(iii)
(including, without limitation, and immediately upon determination, any
amounts due and payable by the Corporation pursuant to reverse repurchase
agreements and any payables for assets purchased as of such Valuation Date)
less (b) (i) the Adjusted Value of any of the Corporation's assets or (ii) the
face value of any of the Corporation's assets if, in the case of both (b)(i)
and (b)(ii), such assets are either cash or evidences of indebtedness which
mature prior to or on the date of redemption or repurchase of shares of
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or evidences of indebtedness which have a rating assigned by
Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+
or A-1+, and are irrevocably held by the Corporation's custodian bank in a
segregated account or deposited by the Corporation with the dividend-
disbursing agent or Paying Agent, as the case may be, for the payment of the
amounts needed to redeem or repurchase Preferred Stock subject to redemption
or repurchase or any of (a)(ii) through (a)(iv); and provided that in the
event the Corporation has repurchased Preferred Stock and irrevocably
segregated or deposited assets as described above with its custodian bank, the
dividend-disbursing agent or Paying Agent for the payment of the repurchase
price the Corporation may deduct 100% of the Liquidation Preference of such
Preferred Stock to be repurchased from (a) above. Basic Maintenance Amount
shall, for the purposes of these Articles Supplementary, have a correlative
meaning with respect to any other class or series of Preferred Stock.
"Basic Maintenance Amount Cure Date" means, with respect to the Series E Preferred Stock, 10 Business Days following a Valuation Date, such date being the last day upon which the Corporation's failure to comply with paragraph 9(a)(ii)(A) of Article I of these Articles Supplementary could be cured, and shall, for the purposes of these Articles Supplementary, have a correlative meaning with respect to any other class or series of Preferred Stock.
"Basic Maintenance Test" means, with respect to the Series E Preferred Stock, a test which is met if the lower of the aggregate Discounted Values of the Moody's Eligible Assets or the S&P Eligible Assets if both Moody's and S&P are then rating the Series E Preferred Stock at the request of the Corporation, or the Eligible Assets of whichever of Moody's or S&P is then doing so if only one of Moody's or S&P is then rating the Series E Preferred Stock at the request of the Corporation, meets or exceeds the Basic Maintenance Amount.
"Basic Maintenance Report" or "Report" means, with respect to the Series E Preferred Stock, a report prepared by the Administrator which sets forth, as of the related Monthly Valuation Date, (i) Moody's Eligible Assets and S&P Eligible Assets sufficient to meet or exceed the Basic Maintenance Amount, (ii) the Market Value and Discounted Value thereof (seriatim and in the aggregate), and(iii) the Basic Maintenance Amount, and shall, for (iv) the net asset value of the Corporation. Such report will also include (A) the month-end closing price for the Common Stock of the Corporation (B) the monthly total-return per Common Stock, which will be determined based upon month-end closing share prices, assuming reinvestment of all dividends paid during such month and (C) the total leverage position of the Corporation. For the purposes of these Articles Supplementary, "Basic Maintenance Report" or "Report" shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Beneficial Owner," with respect to the shares of Series E Preferred Stock, means a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of Series E Preferred Stock.
"Bid" has the meaning set forth in paragraph 2(a) of Article II of these Articles Supplementary.
"Bidder" has the meaning set forth in paragraph 2(a) of Article II of these Articles Supplementary, provided however that neither the Corporation nor any Affiliate shall be permitted to be Bidder in an Auction.
"Board of Directors" or "Board" means the Board of Directors of the Corporation or any duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other entity permitted by law to perform the functions required of a Broker-Dealer by the Auction Procedures, that has been selected by the Corporation and has entered into a Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in The City of New York, New York are authorized or obligated by law to close.
"Charter" means the Articles of Incorporation of the Corporation, as amended or supplemented (including these Articles Supplementary), as filed with the State Department of Assessments and Taxation of the State of Maryland.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the shares of the Corporation's common stock, par value $.001 per share.
"Corporation" means The Gabelli Equity Trust Inc., a Maryland corporation.
"Cure Date" has the meaning set forth in paragraph 3(a)(ii) of Article I of these Articles Supplementary.
"Date of Original Issue" means [__], 2003, and, for the purposes of these Articles Supplementary, shall mean with respect to any other class or series of Preferred Stock the date upon which shares of such class or series are first issued.
"Default" means a Dividend Default or a Redemption Default.
"Default Period" means a Dividend Default or a Redemption Default.
"Default Rate" has the meaning set forth in paragraph 2(c)(iii) of Article I of these Articles Supplementary.
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S. Government Obligations. Except for determining whether the Corporation has Eligible Assets with an Adjusted Value equal to or greater than the Basic Maintenance Amount, each Deposit Asset shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Asset but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made.
"Discount Factor" means (a) so long as Moody's is rating the Series E Preferred Stock at the Corporation's request, the Moody's Discount Factor, (b) so long as S&P is rating the Series E Preferred Stock at the Corporation's request, the S&P Discount Factor, and/or (c) any applicable discount factor established by any Other Rating Agency, whichever is applicable.
"Discounted Value" means, as applicable, (a) the quotient of the
Market Value of an Eligible Asset divided by the applicable Discount Factor or
(b) such other formula for determining the discounted value of an Eligible
Asset as may be established by an applicable Rating Agency, provided, in
either case that with respect to an Eligible Asset that is currently callable,
Discounted Value will be equal to the applicable quotient or product as
calculated above or the call price, whichever is lower, and that with respect
to an Eligible Asset that is prepayable, Discounted Value will be equal to the
applicable quotient or product as calculated above or the par value, whichever
is lower.
"Dividend Default" has the meaning set forth in paragraph 2(c)(ii) of Article I of these Articles Supplementary.
"Dividend Payment Date" means with respect to the Series E Preferred Stock, any date on which dividends declared by the Board of Directors thereon are payable pursuant to the provisions of paragraph 2(b) of Article I of these Articles Supplementary and shall for the purposes of these Articles Supplementary have a correlative meaning with respect to any other class or series of Preferred Stock.
"Dividend Period" means, with respect to Series E Preferred Stock, the initial period determined in the manner set forth under "Designation" above, and thereafter, the period commencing on the Business Day following each Auction Date and ending on the next Auction Date or, if such next Auction Date is not immediately followed by a Business Day, on the latest day prior to the next succeeding Business Day, and shall, for the purposes of these Articles Supplementary, have a correlative meaning with respect to any other class or series of Preferred Stock.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then rating the Series E Preferred Stock at the request of the Corporation), S&P Eligible Assets (if S&P is then rating the Series E Preferred Stock at the request of the Corporation), and/or Other Rating Agency Eligible Assets, whichever is applicable.
"Holder" means, with respect to the Preferred Stock, including the Series E Preferred Stock, the registered holder of such shares as the same appears on the stock ledger or stock records of the Corporation or records of the Auction Agent, as the case may be.
"Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is with respect to the Corporation an independent public accountant or firm of independent public accountants under the 1933 Act.
"Industry Classification" means a six-digit industry classification in the Standard Industry Classification system published by the United States.
"Liquidation Preference" shall, with respect to each share of Series E Preferred Stock, have the meaning set forth in paragraph 7(a) of Article I of these Articles Supplementary and shall, for the purposes of these Articles Supplementary, have a correlative meaning with respect to any other class or series of Preferred Stock.
"Mandatory Redemption Date" has the meaning set forth in paragraph 3(a)(iii) of Article I of these Articles Supplementary.
"Market Value" means the amount determined by the Corporation with respect to specific Eligible Assets in accordance with valuation policies adopted from time to time by the Board of Directors as being in compliance with the requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the Corporation with respect to any of its assets, mean the amount determined with respect to specific Eligible Assets of the Corporation in the manner set forth below:
(a) as to any common or preferred stock which is an Eligible
Asset, (i) if the stock is traded on a national securities exchange or quoted
on the Nasdaq System, the last sales price reported on the Valuation Date or,
(ii) if there was no such reported sales price on the Valuation Date, the
price reported by a recognized pricing service or (iii) if there was no such
pricing service report, the lower of two bid prices for such stock provided to
the Administrator by two recognized securities dealers with minimum
capitalizations of $25,000,000 (or otherwise approved for such purpose by
Moody's and S&P) or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
Moody's and S&P's then-current rating of the Series E Preferred Stock), at
least one of which shall be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation reducible to written
form or similar means, and in turn provided to the Corporation by any such
means by such Administrator, or, if two bid prices cannot be obtained, such
Eligible Asset shall have a Market Value of zero;
(b) as to any U.S. Government Obligation, Short-Term Money Market Instrument (other than demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements) and commercial paper, with a maturity of greater than 60 days, the product of (i) the principal amount (accreted principal to the extent such instrument accretes interest) of such instrument, and (ii) the lower of the bid prices for the same kind of instruments having, as nearly as practicable, comparable interest rates and maturities provided by two recognized securities dealers having minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's and S&P) or by one such dealer and any other source (provided that the utilization of such source would not adversely affect Moody's and S&P's then-current rating of the Series E Preferred Stock) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such Administrator, or, if two bid prices cannot be obtained, such Eligible Asset will have a Market Value of zero;
(c) as to cash, demand or time deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements included in Short-Term Money Market Instruments, the face value thereof;
(d) as to any U.S. Government Obligation, Short-Term Money Market Instrument or commercial paper with a maturity of 60 days or fewer, amortized cost unless the Board of Directors determines that such value does not constitute fair value;
(e) as to any other evidence of indebtedness which is an Eligible Asset, (i) the product of (A) the unpaid principal balance of such indebtedness as of the Valuation Date and (B)(1) if such indebtedness is traded on a national securities exchange or quoted on the Nasdaq System, the last sales price reported on the Valuation Date or (2) if there was no reported sales price on the Valuation Date or if such indebtedness is not traded on a national securities exchange or quoted on the Nasdaq System, the lower of two bid prices for such indebtedness provided by two recognized dealers with a minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's and S&P) or by one such dealer and any other source (provided that the utilization of such source would not adversely affect Moody's and S&P's then-current rating of the Series E Preferred Stock) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Corporation by any such means by such Administrator, plus (ii) accrued interest on such indebtedness.
"Maximum Rate" means, on any date on which the Applicable Rate is determined, the applicable percentage of (i) in the case of a dividend period of 184 days or less, the "AA" Financial Composite Commercial Paper Rate on the date of such Auction determined as set forth below based on the lower of the credit ratings assigned to the Series E Preferred by Moody's and S&P subject to upward but not downward adjustment in the discretion of the Board of Directors after consultation with the Broker-Dealers; provided that immediately following any such increase the Corporation would be in compliance with the Basic Maintenance Amount or (ii) in the case of a dividend period of longer than 184 days, the Treasury Index Rate.
Moody's Credit Rating S&P Credit Rating Applicable Percentage
-------------------------------- -------------------------------- ---------------------------------
Aa3 or higher AA- or higher 150%
A3 to A1 A- to A+ 175%
Baa3 to Baa1 BBB- to BBB+ 250%
Below Baa3 Below BBB- 275%
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"Monthly Valuation Date" means the last Valuation Date for each Month.
"Moody's" means Moody's Investors Service, Inc. and its successors at law.
"Moody's Discount Factor" means, with respect to a Moody's Eligible Asset specified below, the following applicable number:
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------ ---------------
Short Term Money Market Instruments (other than U.S. Government Obligations
set forth below) and other commercial paper:
U.S. Treasury Securities with final maturities that are less
than or equal to 60 days........................................ 1.00
Demand or time deposits, certificates of deposit and bankers'
acceptances includible in Moody's Short Term Money Market
Instruments..................................................... 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days
or less......................................................... 1.00
Commercial paper rated P-1 by Moody's maturing in more
than 30 days but in 270 days or less............................ 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days
or less......................................................... 1.25
Repurchase obligations includible in Moody's Short Term
Money Market Instruments if term is less than 30 days and
counterparty is rated at least A2............................... 1.00
Other repurchase obligations.................................... Discount Factor applicable to
the underlying assets
U.S. Common Stocks and Common Stocks of foreign issuers for
which ADRs are traded................................................ 3.00
Utility..................................................... 1.70
Industrial.................................................. 2.64
Financial................................................... 2.41
Transportation.............................................. 3.40
Common Stocks of foreign issuers (in existence for at least five
years) for which no ADRs are traded.................................. 4.00
Convertible Preferred Stocks......................................... 3.00
Preferred stocks:
Auction rate preferred stocks
Cumulative.................................................. 3.50
Non-Cumulative.............................................. 3.60
Other preferred stocks issued by issuers in the financial and
industrial industries
Cumulative.................................................. 1.97
Non-Cumulative.............................................. 2.07
Other preferred stocks issued by issuers in the utilities
industry
Cumulative.................................................. 1.55
Non-Cumulative.............................................. 1.65
U.S. Government Obligations (other than U.S. Treasury Securities Strips set
forth below) with remaining terms to maturity of:
1 year or less.................................................. 1.04
2 years or less................................................. 1.09
3 years or less................................................. 1.12
4 years or less................................................. 1.15
5 years or less................................................. 1.18
7 years of less................................................. 1.21
10 years or less................................................ 1.24
15 years or less................................................ 1.25
20 years or less................................................ 1.26
30 years or less................................................ 1.26
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less........................................... 1.04
2 years or less.......................................... 1.10
3 years or less.......................................... 1.14
4 years or less.......................................... 1.18
5 years or less.......................................... 1.21
7 years or less.......................................... 1.27
10 years or less......................................... 1.34
15 years or less......................................... 1.45
20 years or less......................................... 1.54
30 years or less......................................... 1.66
Corporate Debt:
Non-convertible corporate debt rated at least Aaa1 with remaining terms
to maturity of:
1 year or less.............................................. 1.09
2 years or less............................................. 1.15
3 years or less............................................. 1.20
4 years or less............................................. 1.26
5 years or less............................................. 1.32
7 years or less............................................. 1.39
10 years or less............................................ 1.45
15 years or less............................................ 1.50
20 years or less............................................ 1.50
30 years or less............................................ 1.50
Non-convertible corporate debt rated at least Aa3 with remaining terms to
maturity of:
1 year or less.............................................. 1.12
2 years of less............................................. 1.18
3 years or less............................................. 1.23
4 years or less............................................. 1.29
5 years or less............................................. 1.35
7 years or less............................................. 1.43
10 years or less............................................ 1.50
15 years or less............................................ 1.55
20 years or less............................................ 1.55
30 years or less............................................ 1.55
Non-convertible corporate debt rated at least A3 with remaining terms to
maturity of:
1 year or less.............................................. 1.15
2 years or less............................................. 1.22
3 years or less............................................. 1.27
4 years or less............................................. 1.33
5 years or less............................................. 1.39
7 years or less............................................. 1.47
10 years or less............................................ 1.55
15 years or less............................................ 1.60
20 years or less............................................ 1.60
30 years or less............................................ 1.60
Non-convertible corporate debt rated at least Baa3 with remaining terms
of maturity of:
1 year or less.............................................. 1.18
2 years or less............................................. 1.25
3 years or less............................................. 1.31
4 years or less............................................. 1.38
5 years or less............................................. 1.44
7 years or less............................................. 1.52
10 years or less............................................ 1.60
15 years or less............................................ 1.65
20 years or less............................................ 1.65
30 years or less............................................ 1.65
Non-convertible corporate debt rated at least Ba3 with remaining terms of
maturity of:
1 year or less.............................................. 1.37
2 years or less............................................. 1.46
3 years or less............................................. 1.53
4 years or less............................................. 1.61
5 years or less............................................. 1.68
7 years or less............................................. 1.79
10 years or less............................................ 1.89
15 years or less............................................ 1.96
20 years or less............................................ 1.96
30 years or less............................................ 1.96
Non-convertible corporate debt rated at least B1 and B2 with remaining
terms of maturity of:
1 year or less.............................................. 1.50
2 years or less............................................. 1.60
3 years or less............................................. 1.68
4 years or less............................................. 1.76
5 years or less............................................. 1.85
7 years or less............................................. 1.97
10 years or less............................................ 2.08
15 years or less............................................ 2.16
20 years or less............................................ 2.28
30 years or less............................................ 2.29
Convertible corporate debt securities rated at least Aa3 issued by the
following type of issuers:
Utility......................................................... 1.67
Industrial...................................................... 2.61
Financial....................................................... 2.38
Transportation.................................................. 2.65
Convertible corporate debt securities rated at least A3 issued by the
following type of issuers:
Utility......................................................... 1.72
Industrial...................................................... 2.66
Financial....................................................... 2.43
Transportation.................................................. 2.75
Convertible corporate debt securities rated at least Baa3 issued by the
following type of issuers:
Utility......................................................... 1.88
Industrial...................................................... 2.82
Financial....................................................... 2.59
Transportation.................................................. 2.85
Convertible corporate debt securities rated at least Ba3 issued by the
following type of issuers:
Utility......................................................... 1.95
Industrial...................................................... 2.90
Financial....................................................... 2.65
Transportation.................................................. 2.90
Convertible corporate debt securities rated at least B2 issued by the
following type of issuers:
Utility......................................................... 1.98
Industrial...................................................... 2.93
Financial....................................................... 2.70
Transportation.................................................. 2.95
|
"Moody's Eligible Assets" means:
(a) cash (including, for this purpose, receivables for investments sold to a counterparty whose senior debt securities are rated at least Baa3 by Moody's or a counterparty approved by Moody's and payable within five Business Days following such Valuation Date and dividends and interest receivable within 49 days on investments);
(b) Short-Term Money Market Instruments;
(c) commercial paper that is not includible as a Short-Term Money Market Instrument having on the Valuation Date a rating from Moody's of at least P-1 and maturing within 270 days;
(d) preferred stocks (i) which either (A) are issued by issuers whose
senior debt securities are rated at least Baa1 by Moody's or (B) are rated at
least Baa3 by Moody's or (C) in the event an issuer's senior debt securities or
preferred stock is not rated by Moody's, which either (1) are issued by an
issuer whose senior debt securities are rated at least A- by S&P or (2) are
rated at least A- by S&P and for this purpose have been assigned a Moody's
equivalent rating of at least Baa3, (ii) of issuers which have (or, in the case
of issuers which are special purpose corporations, whose parent companies have)
common stock listed on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market System, (iii) which have a minimum issue size
(when taken together with other of the issuer's issues of similar tenor) of
$50,000,000, (iv) which have paid cash dividends consistently during the
preceding three-year period (or, in the case of new issues without a dividend
history, are rated at least A1 by Moody's or, if not rated by Moody's, are rated
at least AA- by S&P), (v) which pay cumulative cash dividends in U.S. dollars,
(vi) which are not convertible into any other class of stock and do not have
warrants attached, (vii) which are not issued by issuers in the transportation
industry and (viii) in the case of auction rate preferred stocks, which are
rated at least Aa3 by Moody's, or if not rated by Moody's, AAA by S&P, AAA by
Fitch or are otherwise approved in writing by Moody's and have never had a
failed auction; provided, however, that for this purpose the aggregate Market
Value of the Company's holdings of any single issue of auction rate preferred
stock shall not be more than 1% of the Corporation's total assets.
(e) common stocks (i) (A) which are traded on a nationally recognized stock exchange or in the over-the-counter market, (B) if cash dividend paying, pay cash dividends in U.S. dollars and (C) which may be sold without restriction by the Corporation; provided, however, that (y) common stock which, while a Moody's Eligible Asset owned by the Corporation, ceases paying any regular cash dividend will no longer be considered a Moody's Eligible Asset until 71 days after the date of the announcement of such cessation, unless the issuer of the common stock has senior debt securities rated at least A3 by Moody's and (z) the aggregate Market Value of the Corporation's holdings of the common stock of any issuer in excess of 4% in the case of utility common stock and 6% in the case of non-utility common stock of the aggregate Market Value of the Corporation's holdings shall not be Moody's Eligible Assets, (ii) which are securities denominated in any currency other than the U.S. dollar or securities of issuers formed under the laws of jurisdictions other than the United States, its states and the District of Columbia for which there are ADRs or their equivalents which are traded in the United States on exchanges or over-the-counter and are issued by banks formed under the laws of the United States, its states or the District of Columbia or (iii) which are securities of issuers formed under the laws of jurisdictions other than the United States (and in existence for at least five years) for which no ADRs are traded; provided, however, that the aggregate Market Value of the Corporation's holdings of securities denominated in currencies other than the U.S. dollar and ADRs in excess of (A) 6% of the aggregate Market Value of the Outstanding shares of common stock of such issuer thereof or (B) in excess of 10% of the Market Value of the Corporation's Moody's Eligible Assets with respect to issuers formed under the laws of any single such non-U.S. jurisdiction other than Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom, shall not be a Moody's Eligible Asset;
(f) ADR securities, based on the following guidelines: (i) Sponsored ADR program or (ii) Level II or Level III ADRs. Private placement Rule 144A ADRs are not eligible for collateral consideration. Global GDR programs will be evaluated on a case by case basis;
(g) U.S. Government Obligations;
(h) corporate evidences of indebtedness (i) which may be sold without restriction by the Corporation which are rated at least B3 (Caa subordinate) by Moody's (or, in the event the security is not rated by Moody's, the security is rated at least BB- by S&P and which for this purpose is assigned a Moody's equivalent rating of one full rating category lower), with such rating confirmed on each Valuation Date, (ii) which have a minimum issue size of at least (A) $100,000,000 if rated at least Baa3 or (B) $50,000,000 if rated B or Ba3, (iii) which are not convertible or exchangeable into equity of the issuing corporation and have a maturity of not more than 30 years and (iv) for which, if rated below Baa3 or not rated, the aggregate Market Value of the Company's holdings do not exceed 10% of the aggregate Market Value of any individual issue of corporate evidences of indebtedness calculated at the time of original issuance; and
(i) convertible corporate evidences of indebtedness (i) which are
issued by issuers whose senior debt securities are rated at least B2 by Moody's
(or, in the event an issuer's senior debt securities are not rated by Moody's,
which are issued by issuers whose senior debt securities are rated at least BB
by S&P and which for this purpose is assigned a Moody's equivalent rating of one
full rating category lower), (ii) which are convertible into common stocks which
are traded on the New York Stock Exchange or the American Stock Exchange or are
quoted on the Nasdaq National Market System and (iii) which, if cash dividend
paying, pay cash dividends in U.S. dollars; provided, however, that once
convertible corporate evidences of indebtedness have been converted into common
stock, the common stock issued upon conversion must satisfy the criteria set
forth in clause (e) above and other relevant criteria set forth in this
definition in order to be a Moody's Eligible Asset; provided, however, that the
Corporation's investments in auction rate preferred stocks described in clause
(d) above shall be included in Moody's Eligible Assets only to the extent that
the aggregate Market Value of such stocks does not exceed 10% of the aggregate
Market Value of all of the Corporation's investments meeting the criteria set
forth in clauses (a) through (g) above less the aggregate Market Value of those
investments excluded from Moody's Eligible Assets pursuant to the paragraph
appearing after clause (i) below; and
(j) no assets which are subject to any lien or irrevocably deposited by the Corporation for the payment of amounts needed to meet the obligations described in clauses (a)(i) through (a)(iv) of the definition of "Basic Maintenance Amount" may be includible in Moody's Eligible Assets.
Notwithstanding anything to the contrary in the preceding clauses
(a)-(j), the Corporation's investment in preferred stock, common stock,
corporate evidences of indebtedness and convertible corporate evidences of
indebtedness shall not be treated as Moody's Eligible Assets except to the
extent they satisfy the following diversification requirements (utilizing
Moody's Industry and Sub-industry Categories) with respect to the Market Value
of the Corporation's holdings:
Issuer:
Non-Utility Utility
Maximum Single Maximum Single
Moody's Rating(1)(2) Issuer(3)(4) Issuer(3)(4)
-------------------- ------------ ------------
Aaa 100% 100%
Aa 20% 20%
A 10% 10%
CS/CB, Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 or lower 2% 2%
|
Industry and State:
Utility
Non-Utility Maximum Utility
Maximum Single Single Sub- Maximum Single
Moody's Rating(1) Industry(3) Industry(3)(6) State(3)
----------------- ----------- -------------- --------
Aaa 100% 100% 100%
Aa 60% 60% 20%
A 40% 50% 10%(7)
CS/CB, Baa(5) 20% 50% 7%(7)
Ba 12% 12% 0%
B1/B2 8% 8% 0%
B3 or lower 5% 5% 0%
|
(1) Unless conclusions regarding liquidity risk as well as estimates of both the probability and severity of default for the Corporation's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or other debt security is unrated by Moody's, S&P or Fitch, the Corporation will use the percentage set forth under "B3 or lower" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent.
(2) Corporate evidences of indebtedness from issues ranging $50,000,000 to $100,000,000 are limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one name.
(5) CS/CB refers to common stock and convertible corporate evidences of indebtedness, which are diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility evidences of indebtedness and utility convertible evidences of indebtedness, the definition of industry refers to sub-industries (electric, water, hydro power, gas, diversified). Investments in other sub-industries are eligible only to the extent that the combined sum represents a percentage position of the Moody's Eligible Assets less than or equal to the percentage limits in the diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by California, New York and Texas.
"Moody's Hedging Transactions" means purchases or sales of exchange-traded financial futures contracts based on any index approved by Moody's or Treasury Bonds, and purchases, writings or sales of exchange-traded put options on such financial futures contracts, any index approved by Moody's or Treasury Bonds, and purchases, writings or sales of exchange-traded call options on such financial futures contracts, any index approved by Moody's or Treasury Bonds, subject to the following limitations:
(a) the Corporation will not engage in any Moody's Hedging Transaction based on any index approved by Moody's (other than Closing Transactions) that would cause the Corporation at the time of such transaction to own or have sold:
(i) outstanding financial futures contracts based on such index exceeding in number 10% of the average number of daily traded financial futures contracts based on such index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal; or
(ii) outstanding financial futures contracts based on any index approved by Moody's having a Market Value exceeding 50% of the Market Value of all portfolio securities of the Corporation constituting Moody's Eligible Assets owned by the Corporation;
(b) The Corporation will not engage in any Moody's Hedging Transaction based on Treasury Bonds (other than Closing Transactions) that would cause the Corporation at the time of such transaction to own or have sold:
(i) outstanding financial futures contracts based on Treasury Bonds with such contracts having an aggregate Market Value exceeding 20% of the aggregate Market Value of Moody's Eligible Assets owned by the Corporation and rated Aa by Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P); or
(ii) outstanding financial futures contracts based on Treasury Bonds with such contracts having an aggregate Market Value exceeding 50% of the aggregate Market Value of all portfolio securities of the Corporation constituting Moody's Eligible Assets owned by the Corporation (other than Moody's Eligible Assets already subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if not rated by Moody's but rated by S&P, rated A or AA by S&P);
(c) The Corporation will engage in Closing Transactions to close out any outstanding financial futures contract based on any index approved by Moody's if the amount of open interest in such index as reported by The Wall Street Journal is less than an amount to be mutually determined by Moody's and the Corporation;
(d) The Corporation will engage in a Closing Transaction to close out any outstanding financial futures contract by no later than the fifth Business Day of the month in which such contract expires and will engage in a Closing Transaction to close out any outstanding option on a financial futures contract by no later than the first Business Day of the month in which such option expires;
(e) The Corporation will engage in Moody's Hedging Transactions only with respect to financial futures contracts or options thereon having the next settlement date or the settlement date immediately thereafter;
(f) The Corporation (i) will not engage in options and futures transactions for leveraging or speculative purposes, except that an option or futures transaction shall not for these purposes be considered a leveraged position or speculative and (ii) will not write any call options or sell any financial futures contracts for the purpose of hedging the anticipated purchase of an asset prior to completion of such purchase; and
(g) The Corporation will not enter into an option or futures transaction unless, after giving effect thereto, the Corporation would continue to have Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the Basic Maintenance Amount.
"Moody's Industry Classifications" means, for the purposes of determining Moody's Eligible Assets, each of the following industry classifications (or such other classifications as Moody's may from time to time approve for application to the Series E Preferred Stock).
1. Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft Manufacturing, Arms, Ammunition.
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts Manufacturing, Personal Use Trailers, Motor Homes, Dealers.
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan, Agency, Factoring, Receivables.
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil.
5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting, Engineering, Construction, Hardware, Forest Products (building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land Development.
6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural), Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints, Varnish, Fabricating Containers.
7. Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood or Fiberglass.
8. Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies.
9. Diversified/Conglomerate Manufacturing.
10. Diversified/Conglomerate Service.
11. Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution.
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste Disposal.
13. Electronics: Computer Hardware, Electric Equipment, Components, Controllers, Motors, Household Appliances, Information Service Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology.
14. Finance: Investment Brokerage, Leasing, Syndication, Securities.
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals, Agricultural Equipment, Fertilizers.
16. Grocery: Grocery Stores, Convenience Food Stores.
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs, Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment.
18. Home and Office Furnishings, Housewares, and Durable Consumer Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges.
19. Hotels, Motels, Inns and Gaming.
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety.
21. Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling, Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy Manufacturing, Motion Picture Production Theaters, Motion Picture Distribution.
22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic): Industrial, Machine Tools, Steam Generators.
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales of the foregoing.
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling.
25. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper Products, Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio, T.V., Cable Broadcasting Equipment.
26. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport.
27. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog, Showroom.
28. Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph, Satellite, Equipment, Research, Cellular.
29. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer, Leather Shoes.
30. Personal Transportation: Air, Bus, Rail, Car Rental.
31. Utilities: Electric, Water, Hydro Power, Gas.
32. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces, Supra- national Agencies.
The Corporation will use SIC codes in determining which industry classification is applicable to a particular investment in consultation with the Independent Accountant and Moody's, to the extent the Corporation considers necessary.
"1933 Act" means the Securities Act of 1933, as amended, or any successor statute.
"1940 Act" means the Investment Company Act of 1940, as amended, or any successor statute.
"Non-Call Period" means a period determined by the Board of Directors after consultation with the Broker-Dealers, during which the Series E Preferred Stock subject to such Special Dividend Period is not subject to redemption at the option of the Corporation but only to mandatory redemption.
"Notice of Redemption" means any notice with respect to the redemption of Series E Preferred Stock pursuant to paragraph 3 of Article I of these Articles Supplementary.
"Other Rating Agency" means any rating agency other than Moody's or S&P then providing a rating for the Series E Preferred Stock at the request of the Corporation.
"Other Rating Agency Eligible Assets" means assets of the Corporation designated by any Other Rating Agency as eligible for inclusion in calculating the discounted value of the Corporation's assets in connection with such Other Rating Agency's rating of the Series E Preferred Stock.
"Outstanding" means, as of any date, shares of Preferred Stock theretofore issued by the Corporation except:
(a) any such share of Preferred Stock theretofore cancelled by the Corporation or delivered to the Corporation for cancellation;
(b) any such share of Preferred Stock other than an auction rate Preferred Stock as to which a notice of redemption shall have been given and for whose payment at the redemption thereof Deposit Assets in the necessary amount are held by the Corporation in trust for or have been irrevocably deposited with the relevant disbursing agent for payment to the holder of such share pursuant to the Articles Supplementary with respect thereto;
(c) in the case of shares of an auction rate Preferred Stock, including the Series E Preferred Stock, any such shares theretofore delivered to the applicable auction agent for cancellation or with respect to which the Corporation has given notice of redemption and irrevocably deposited with the applicable paying agent sufficient funds to redeem such shares; and
(d) any such share in exchange for or in lieu of which other shares have been issued and delivered.
Notwithstanding the foregoing, (i) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any Preferred Stock as to which any subsidiary of the Corporation is the holder or Existing Holder, as applicable, will be disregarded and deemed not Outstanding and (ii) in connection with any auction, any auction rate Preferred Stock as to which any Person known to the auction agent to be a subsidiary of the Corporation is the holder or Existing Holder, as applicable, will be disregarded and not deemed Outstanding.
"Paying Agent" means The Bank of New York unless and until another entity appointed by a resolution of the Board of Directors enters into an agreement with the Corporation to serve as paying agent, which paying agent may be the same as the Auction Agent and, with respect to any other class or series of Preferred Stock, the Person appointed by the Corporation as dividend-disbursing or paying agent with respect to such class or series.
"Person" means and includes an individual, a partnership, the Corporation, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
"Preferred Stock" means the preferred stock, par value $.001 per share, of the Corporation, and includes the shares of Series E Preferred Stock.
"Preferred Stocks" means, with respect to S&P Ratings Factors, the
preferred stock of issuers whose common stock satisfies subsections
(b)(i)-(iv) of the definition of S&P Eligible Assets.
"Premium Call Period" means a period consisting of a number of whole years as determined by the Board of Directors after consultation with the Broker-Dealers, during each year of which the shares subject to such Special Dividend Period will be redeemable at the Corporation's option at a price per share equal to the Liquidation Preference plus accumulated but unpaid dividends (whether or not earned or declared) plus a premium expressed as a percentage or percentages of the Liquidation Preference or expressed as a formula using specified variables as determined by the Board of Directors after consultation with the Broker-Dealers.
"Pricing Service" means any of the following: Bloomberg Financial Service, Bridge Information Services, Data Resources Inc., FT Interactive, International Securities Market Association, Merrill Lynch Securities Pricing Service, Muller Data Corp., Reuters, S&P/J.J. Kenny, Telerate, Trepp Pricing and Wood Gundy.
"Public Equity Large-Cap" means any equity issuer with a market capitalization in excess of $10 billion.
"Public Equity Mid-Cap" means any equity issuer with a market capitalization in excess of $1 billion but less than or equal to $10 billion.
"Public Equity Small-Cap" means any equity issuer with a market capitalization of less than or equal to $1 billion.
"Quarterly Valuation Date" means the last Business Day of each March, June, September and December of each year.
"Rating Agency" means Moody's and S&P as long as such rating agency is then rating the Series E Preferred Stock at the Corporation's request or any other rating agency then rating the Series E Preferred Stock at the Corporation's request.
"Redemption Date" has the meaning set forth in paragraph 3(e) of Article I of these Articles Supplementary.
"Redemption Default" has the meaning set forth in paragraph 3(e) of Article I of these Articles Supplementary.
"Redemption Price" shall mean (a) with respect to a Dividend Period that is not a Premium Call Period, the Liquidation Preference plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the Redemption Date, or, (b) with respect to a Dividend Period that is a Premium Call Period, the Liquidation Preference plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the Redemption Date plus a redemption premium, if any, determined by the Board of Directors after consultation with the Broker-Dealers and set forth in the notice describing any applicable Specific Redemption Provisions. For the purposes of these Articles Supplementary, "Redemption Price" shall have a correlative meaning with respect to any other class or series of Preferred Stock.
"Reference Rate" means, with respect to the determination of the Default Rate, the applicable "AA" Financial Composite Commercial Paper Rate for a Dividend Period of 184 days or fewer or the applicable Treasury Index Rate for a Dividend Period of longer than 184 days and, with respect to the determination of the Maximum Rate, the "AA" Financial Composite Commercial Paper Rate or the Treasury Index Rate, as appropriate.
"Registrar" means The Bank of New York, unless and until another entity appointed by a resolution of the Board of Directors enters into an agreement with the Corporation to serve as registrar.
"S&P" means Standard & Poor's Ratings Services, or its successors at law.
"S&P Rating Factor" means, with respect to a S&P Eligible Asset specified below, the following applicable number:
Asset Class Obligor Overcollateralization
(Collateral) Advance Rates (1) Factors (1)
------------ ----------------- -----------
Public Equity Small-Cap 46.0% 217.4%
Public Equity Mid-Cap 53.6% 186.6%
Public Equity Large-Cap 59.7% 167.6%
Cash and Other Deposit 100% 100%
Securities with Maturities
of 30 days or less
______________
|
(1) For an S&P rating of AAA.
"S&P Eligible Assets" means:
(a) Deposit Assets; and
(b) common stocks that satisfy all of the following conditions:
(i) such common stock (including the common stock of any predecessor or constituent issuer) has been traded on a recognized national securities exchange or quoted on the National Market System (or any equivalent or successor thereto) of Nasdaq for at least 450 days,
(ii) the Market Capitalization of such issuer of common stock exceeds $100 million,
(iii) the issuer of such common stock is not an entity that is treated as a partnership for federal income tax purposes,
(iv) if such issuer is organized under the laws of any jurisdiction other than the United States, any state thereof, any possession or territory thereof or the District of Columbia, the common stock of such issuer held by the Corporation is traded on a recognized national securities exchange or quoted on the National Market System of Nasdaq either directly or in the form of depository receipts, and
(v) if such issuer is registered as an investment company under the 1940 Act, such issuer does not invest more than 25% of the value of its gross assets in securities that are not S&P Eligible Assets by reason of clause (iv) above;
provided, however, that the Corporation's holdings of the common stock of any single issuer that satisfies the conditions set forth in clauses (i) through (v) above shall be included in S&P Eligible Assets only to the extent that:
(1) such holdings may be sold publicly by the Corporation at any time without registration,
(2) to the extent remaining eligible after the operation of item (1) above, such holdings do not exceed a number of shares representing the average weekly trading volume of such common stock during the preceding 30 day period,
(3) to the extent remaining eligible after the operation of items (1) and (2) above, the aggregate Market Value of such holdings, when added to the aggregate Market Value of the Corporation's holdings of all other similarly eligible shares of common stock of issuers in the same Industry Classification, does not exceed 10% of the aggregate Market Value of the Corporation's S&P Eligible Assets, and
(4) to the extent remaining eligible after the operation of items (1) through (3) above, the aggregate Market Value of the Corporation's holdings of each of the three largest issuers is not in excess of 5% of the aggregate Market Value of the Corporation's S&P Eligible Assets, and of the remaining issuers, is not in excess of 2% of the aggregate Market Value of the Corporation's S&P Eligible Assets.
(c) Preferred Stocks, on such basis as S&P may determine in response to a request from the Corporation.
Notwithstanding the foregoing, an asset will not be considered an S&P Eligible Asset if it is held in a margin account, is subject to any material lien, mortgage, pledge, security interest or security agreement of any kind or has been deposited irrevocably for the payment of dividends, redemption payments or any other payment or obligation under the Corporation's Articles Supplementary.
"S&P Hedging Transactions" has the meaning set forth in paragraph 11(b)(i) of Article I of these Articles Supplementary.
"Securities Depository" means The Depository Trust Company and its successors and assigns or any successor securities depository selected by the Corporation that agrees to follow the procedures required to be followed by such securities depository in connection with the Series E Preferred Stock.
"Series E Asset Coverage Cure Date" means, with respect to the failure by the Corporation to maintain Asset Coverage (as required by paragraph 9(a)(i)(A) of Article I of these Articles Supplementary) as of an applicable Quarterly Valuation Date, 10 Business Days following such Quarterly Valuation Date, and shall, for the purposes of these Articles Supplementary, have a correlative meaning with respect to any other class or series of Preferred Stock.
"Series E Preferred Stock" means shares of the Corporation's Series E Auction Rate Preferred Stock, par value $.001 per share, liquidation preference $25,000 per share.
"Short-Term Money Market Instrument" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Corporation, the remaining term to maturity thereof is not in excess of 180 days:
(a) commercial paper rated A-1 if such commercial paper matures in 30 days or A-1+ if such commercial paper matures in over 30 days;
(b) AAAm rated money market funds;
(c) demand or time deposits in, and banker's acceptances and certificates of deposit of (i) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (ii) a United States branch office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia), or (iii) A-1+ rated institutions;
(d) overnight funds; and
(e) U.S. Government Obligations.
"Special Dividend Period" means a Dividend Period that is not a Standard Dividend Period.
"Specific Redemption Provisions" means, with respect to any Special Dividend Period of more than one year, either, or any combination of (i) a Non-Call Period and (ii) a Premium Call Period.
"Standard Dividend Period" means a Dividend Period of seven days, subject to increase or decrease to the extent necessary for the next Auction Date and Dividend Payment Date to each be Business Days.
"Submission Deadline" means 1:30 p.m., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.
"Transfer Agent" means The Bank of New York, unless and until another entity appointed by a resolution of the Board of Directors enters into an agreement with the Corporation to serve as transfer agent.
"Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30- day periods to maturity as the length of the applicable Dividend Period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all Dividend Periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, if the most recent such statistical release shall not have been published during the 15 days preceding the date of computation, the foregoing computations shall be based upon the average of comparable data as quoted to the Corporation by at least three recognized dealers in U.S. Government Obligations selected by the Corporation.
"U.S. Government Obligations" means direct obligations of the United States or by its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption.
"Valuation Date" means the last Business Day of each week, or such other date as the Corporation and Rating Agencies may agree to for purposes of determining the Basic Maintenance Amount.
"Voting Period" has the meaning set forth in paragraph 6(b) of Article I of these Articles Supplementary.
14. Interpretation. References to sections, subsections, clauses, sub- clauses, paragraphs and subparagraphs that do not reference a specific Article of these Articles Supplementary or another document shall refer to the Article of these Articles Supplementary in which the reference occurs, unless the context otherwise requires.
Article II: Auction Procedures
1. Certain Definitions. Unless the context or use indicates another or different meaning or intent, each of the following terms when used in these Articles Supplementary shall have the meaning ascribed to it below, whether such term is used in the singular or plural and regardless of tense:
"Agent Member" means a member of or participant in the Securities Depository that will act on behalf of a Bidder.
"Available Preferred Shares" has the meaning set forth in paragraph 4(a)(i) of Article II of these Articles Supplementary.
"Existing Holder" means (a) a Person who beneficially owns those shares of Preferred Stock, including Series E Preferred Stock, listed in that Person's name in the records of the Corporation or Auction Agent, as the case may be, or (b) the beneficial owner of those shares of Series E Preferred Stock which are listed under such person's Broker-Dealer's name in the records of the Auction Agent, which Broker-Dealer shall have signed a Master Purchaser's Letter.
"Hold Order" has the meaning set forth in paragraph 2(a) of Article II of these Articles Supplementary.
"Master Purchaser's Letter" means the letter which is required to be executed by each prospective purchaser of Series E Preferred Stock or by the Broker-Dealer through whom the shares will be held.
"Order" has the meaning set forth in paragraph 2(a) of Article II of these Articles Supplementary.
"Potential Holder" means (a) any Existing Holder who may be interested in acquiring additional Series E Preferred Stock or (b) any other Person who may be interested in acquiring Series E Preferred Stock and who has signed a Master Purchaser's Letter or whose shares will be listed under such person's Broker-Dealer's name on the records of the Auction Agent which Broker-Dealer shall have executed a Master Purchaser's Letter.
"Sell Order" has the meaning set forth in paragraph 2(a) of Article II of these Articles Supplementary.
"Submitted Bid" has the meaning set forth in paragraph 4(a) of Article II of these Articles Supplementary.
"Submitted Hold Order" has the meaning set forth in paragraph 4(a) of Article II of these Articles Supplementary.
"Submitted Order" has the meaning set forth in paragraph 4(a) of Article II of these Articles Supplementary.
"Submitted Sell Order" has the meaning set forth in paragraph 4(a) of Article II of these Articles Supplementary.
"Sufficient Clearing Bids" has the meaning set forth in paragraph 4(a)(ii) of Article II of these Articles Supplementary.
"Sufficient Clearing Orders" means that all shares of Series E Preferred Stock are the subject of Submitted Hold Orders or that the number of shares of Series E Preferred Stock that are the subject of Submitted Bids by Potential Holders specifying one or more rates equal to or less than the Maximum Rate exceeds or equals the sum of (a) the number of shares of Series E Preferred Stock that are subject of Submitted Bids by Existing Holders specifying one or more rates higher than the Maximum Rate and (b) the number of shares of Series E Preferred Stock that are subject to Submitted Sell Orders.
"Winning Bid Rate" means the lowest rate specified in the Submitted Bids which if:
(a) (i) each such Submitted Bid of Existing Holders
specifying such lowest rate and
(ii) all other such Submitted Bids of Existing Holders specifying
lower rates were rejected, thus entitling such Existing
Holders to continue to hold the shares of such series that
are subject to such Submitted Bids; and
(b) (i) each such Submitted Bid of Potential Holders specifying
such lowest rate and
(ii) all other such Submitted Bids of Potential Holders
specifying lower rates were accepted;
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would result in such Existing Holders described in subclause (a) above continuing to hold an aggregate number of Outstanding shares of Series E Preferred Stock which, when added to the number of Outstanding shares of Series E Preferred Stock to be purchased by such Potential Holders described in subclause (b) above, would equal not less than the Available Preferred Shares.
2. Orders.
(a) On or prior to the Submission Deadline on each Auction Date for Series E Preferred Stock:
(i) each Beneficial Owner of Series E Preferred Stock may submit to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares of Series E Preferred Stock, if any, held by such Beneficial Owner which such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for the next succeeding Dividend Period;
(B) the number of Outstanding shares of Series E Preferred Stock, if any, held by such Beneficial Owner which such Beneficial Owner offers to sell if the Applicable Rate for the next succeeding Dividend Period shall be less than the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares of Series E Preferred Stock, if any, held by such Beneficial Owner which such Beneficial Owner offers to sell without regard to the Applicable Rate for the next succeeding Dividend Period; and
(ii)each Broker-Dealer, using lists of potential Beneficial Owners, shall in good faith for the purpose of conducting a competitive Auction in a commercially reasonable manner, contact potential Beneficial Owners (by telephone or otherwise), including Persons that are not Beneficial Owners, on such lists to determine the number of shares of Series E Preferred Stock, if any, that each such potential Beneficial Owner offers to purchase if the Applicable Rate for the next succeeding Dividend Period shall not be less than the rate per annum specified by such potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, of information referred to in clauses (a)(i) or (a)(ii) of this
paragraph (2) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with
the Auction Agent, is hereinafter referred to as a "Bidder" and collectively
as "Bidders;" an Order containing the information referred to in clause
(a)(i)(A) of this paragraph (2) is hereinafter referred to as a "Hold Order"
and collectively as "Hold Orders;" an Order containing the information
referred to in clauses (a)(i)(B) or (a)(ii) of this paragraph (2) is
hereinafter referred to as a "Bid" and collectively as "Bids;" and an Order
containing the information referred to in clause (a)(i)(C) of this paragraph
(2) is hereinafter referred to as a "Sell Order" and collectively as "Sell
Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of Series E Preferred Stock subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell if:
(A) the number of Outstanding shares of Series E Preferred Stock specified in such Bid if the Applicable Rate determined on such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of Series E Preferred Stock to be determined as set forth in paragraph 5(a)(iv) if the Applicable Rate for Series E Preferred Stock determined on such Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding shares of Series E Preferred Stock specified in such Bid if the rate specified therein shall be higher than the Maximum Rate, or such number or a lesser number of Outstanding shares of Series E Preferred Stock to be determined as set forth in paragraph 5(b)(iii) if the rate specified therein shall be higher than the Maximum Rate and Sufficient Clearing Bids do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of Series E Preferred Stock subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of Series E Preferred Stock specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of Series E Preferred Stock as set forth in paragraph 5(b)(iii) if Sufficient Clearing Bids do not exist; provided, however, that a Broker-Dealer that is an Existing Holder with respect to Series E Preferred Stock shall not be liable to any Person for failing to sell such shares pursuant to a Sell Order described in the proviso to paragraph 3(c) if (1) such shares were transferred by the Beneficial Owner thereof without compliance by such Beneficial Owner or its transferee Broker-Dealer (or other transferee Person, if permitted by the Corporation) with the provisions of paragraph 6 or (2) such Broker-Dealer has informed the Auction Agent pursuant to the terms of its Broker-Dealer Agreement that, according to such Broker- Dealer's records, such Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Holder of Series E Preferred Stock subject to an Auction on any Auction Date shall constitute an irrevocable offer to purchase if:
(A) the number of Outstanding shares of Series E Preferred Stock specified in such Bid if the Applicable Rate determined on such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of Series E Preferred Stock as set forth in paragraph 5(a)(v) if the Applicable Rate determined on such Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of shares of Series E Preferred Stock other than whole shares shall be valid.
3. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders for Series E Preferred Stock subject to an Auction on such Auction Date obtained by such Broker-Dealer, designating itself (unless otherwise permitted by the Corporation) as an Existing Holder in respect of shares subject to Orders submitted or deemed submitted to it by Beneficial Owners and as a Potential Holder in respect of shares subject to Orders submitted to it by potential Beneficial Owners, and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the Broker-Dealer unless otherwise permitted by the Corporation);
(ii)the aggregate number of shares of Series E Preferred Stock that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of Series E Preferred Stock:
(A) the number of shares of Series E Preferred Stock, if any, subject to any Hold Order of such Existing Holder;
(B) the number of shares of Series E Preferred Stock, if any, subject to any Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares of Series E Preferred Stock, if any, subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of Series E Preferred Stock, the rate and number of shares of Series E Preferred Stock specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of Series E Preferred Stock held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder and not subject to Orders submitted to the Auction Agent; provided, however, that if an Order or Orders covering all of the Outstanding Series E Preferred Stock held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline for an Auction relating to a Special Dividend Period consisting of more than 28 calendar days, the Auction Agent shall deem a Sell Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding shares of Series E Preferred Stock subject to an Auction held by such Existing Holder, such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders shall be considered valid, but only up to and including in the aggregate the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder, and if the number of shares subject to such Hold Orders exceeds the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder;
(ii)(A) any Bid for Series E Preferred Stock shall be considered valid up to and including the excess of the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder over the number of shares of Series E Preferred Stock subject to any Hold Orders referred to in clause (d)(i) above;
(B) subject to subclause
(d)(ii)(A), if more than one Bid of an Existing Holder for
Series E Preferred Stock is submitted to the Auction Agent
with the same rate and the number of Outstanding shares of
Series E Preferred Stock subject to such Bids is greater than
such excess, such Bids shall be considered valid up to and
including the amount of such excess, and the number of shares
of Series E Preferred Stock subject to each Bid with the same
rate shall be reduced pro rata to cover the number of shares
equal to such excess;
(C) subject to subclauses
(d)(ii)(A) and (B), if more than one Bid of an Existing Holder
for Series E Preferred Stock is submitted to the Auction Agent
with different rates, such Bids shall be considered valid in
the ascending order of their respective rates up to and
including the amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding shares of Series E Preferred Stock subject to any portion of Bids considered not valid in whole or in part under this paragraph 3(d)(ii) shall be treated as the subject of a Bid by or on behalf of a Potential Holder at the rate specified therein; and
(iii) all Sell Orders for Series E Preferred Stock shall be considered valid up to and including the excess of the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder over the sum of Outstanding shares of Series E Preferred Stock subject to valid Hold Orders referred to in paragraph 3(d)(i) above and valid Bids referred to in paragraph 3(d)(ii) above.
(e) If more than one Bid for Series E Preferred Stock is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted shall be a separate Bid with the rate and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, shall be irrevocable.
4. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date for Series E Preferred Stock, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall determine:
(i) the excess of the number of Outstanding shares of Series E Preferred Stock over the number of Outstanding shares of Series E Preferred Stock subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available Preferred Shares");
(ii)from the Submitted Orders for Series E Preferred Stock whether:
(A) the number of Outstanding shares of Series E Preferred Stock subject to Submitted Bids of Potential Holders specifying one or more rates equal to or lower than the Maximum Rate exceeds or is equal to the sum of
(B) the number of Outstanding shares of Series E Preferred Stock subject to Submitted Bids of Existing Holders specifying one or more rates higher than the Maximum Rate; and
(C) the number of Outstanding shares of Series E Preferred Stock subject to Submitted Sell Orders (in the event such excess or such equality exists (other than because the number of shares of Series E Preferred Stock in clauses (a)(ii)(A) and (B) above is zero because all of the Outstanding shares of Series E Preferred Stock are subject to Submitted Hold Orders), such Submitted Bids in clause (a)(ii)(A) above being hereinafter referred to collectively as "Sufficient Clearing Bids"); and
(iii) if Sufficient Clearing Bids exist, the Winning Bid Rate.
(b) Not later than 9:30 A.M., New York City time, on each Auction Date, the Auction Agent shall advise the Corporation of the Maximum Rate for the Series E Preferred Stock for which an Auction is being held on the Auction Date and, based on such determination, promptly after the Auction Agent has made the determinations pursuant to paragraph 4(a), the Auction Agent shall advise the Corporation of the Applicable Rate for the next succeeding Dividend Period thereof as follows:
(i) if Sufficient Clearing Bids exist, that the Applicable Rate for the next succeeding Dividend Period thereof shall be equal to the Winning Bid Rate so determined;
(ii)if Sufficient Clearing Bids do not exist (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), that the Applicable Rate for the next succeeding Dividend Period thereof shall be equal to the Maximum Rate; or
(iii) if all of the Outstanding shares of Series E Preferred Stock are subject to Submitted Hold Orders, that the Applicable Rate for the next succeeding Dividend Period thereof shall be the All Hold Rate.
5. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation.
Existing Holders shall continue to hold the shares of Series E Preferred Stock that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to paragraph 4(a), the Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of Series E Preferred Stock have been made, all Submitted Sell Orders shall be accepted and, subject to the provisions of paragraphs 5(d) and 5(e), Submitted Bids shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected:
(i) Existing Holders' Submitted Bids for Series E Preferred Stock specifying any rate that is higher than the Winning Bid Rate shall be accepted, thus requiring each such Existing Holder to sell the Series E Preferred Stock subject to such Submitted Bids;
(ii)Existing Holders' Submitted Bids for shares Series E Preferred Stock specifying any rate that is lower than the Winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the Series E Preferred Stock subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of Series E Preferred Stock specifying any rate that is lower than the Winning Bid Rate shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of Series E Preferred Stock specifying a rate that is equal to the Winning Bid Rate shall be rejected, thus entitling such Existing Holder to continue to hold the Series E Preferred Stock subject to such Submitted Bid, unless the number of Outstanding shares of Series E Preferred Stock subject to all such Submitted Bids shall be greater than the number of shares of Series E Preferred Stock ("remaining shares") in the excess of the Available Preferred Shares over the number of shares of Series E Preferred Stock subject to Submitted Bids described in paragraphs 5(a)(ii) and 5(a)(iii), in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold Series E Preferred Stock subject to such Submitted Bid, but only in an amount equal to the shares of Series E Preferred Stock obtained by multiplying the number of remaining shares by a fraction, the numerator of which shall be the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of Series E Preferred Stock subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate; and
(v) each Potential Holder's Submitted Bid for Series E Preferred Stock specifying a rate that is equal to the Winning Bid Rate shall be accepted but only in an amount equal to the number of shares obtained by multiplying the number of shares of Series E Preferred Stock in the excess of the Available Preferred Shares over the number of shares of Series E Preferred Stock subject to Submitted Bids described in paragraph 5(a)(ii) through (iv) by a fraction, the numerator of which shall be the number of Outstanding shares of Series E Preferred Stock subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of Series E Preferred Stock subject to such Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate.
(b) If Sufficient Clearing Bids for Series E Preferred Stock have not been made (other than because all of the Outstanding shares are subject to Submitted Hold Orders), subject to the provisions of paragraph 5(d), Submitted Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids for Series E Preferred Stock shall be rejected:
(i) Existing Holders' Submitted Bids for Series E Preferred Stock specifying any rate that is equal to or lower than the Maximum Rate shall be rejected, thus entitling such Existing Holders to continue to hold the Series E Preferred Stock subject to such Submitted Bids;
(ii)Potential Holders' Submitted Bids for Series E Preferred Stock specifying any rate that is equal to or lower than the Maximum Rate shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for Series E Preferred Stock specifying any rate that is higher than the Maximum Rate and the Submitted Sell Orders of each Existing Holder shall be accepted, thus entitling each Existing Holder that submitted or on whose behalf was submitted any such Submitted Bid or Submitted Sell Order to sell Series E Preferred Stock subject to such Submitted Bid or Submitted Sell Order, but in both cases only in an amount equal to the number of shares of Series E Preferred Stock obtained by multiplying the number of shares of Series E Preferred Stock subject to Submitted Bids described in paragraph 5(b)(ii) by a fraction, the numerator of which shall be the number of Outstanding shares of Series E Preferred Stock held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding shares of Series E Preferred Stock subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of Series E Preferred Stock are subject to Submitted Hold Orders, all Submitted Bids for such shares shall be rejected.
(d) If, as a result of the procedures described in
paragraph 5(a)(iv) or (v) or paragraph 5(b)(iii), any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of Series E Preferred Stock on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, round up or down the number of shares of Series E Preferred Stock to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date as a result of such procedures so that the number of shares so purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be whole shares.
(e) If, as a result of the procedures described in paragraph 5(a)(v) any Potential Holder would be entitled or required to purchase less than a whole share of Series E Preferred Stock on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, allocate Series E Preferred Shares for purchase among Potential Holders so that only whole shares are purchased on such Auction Date as a result of such procedures by any Potential Holder, even if such allocation results in one or more Potential Holders not purchasing Series E Preferred Stock on such Auction Date.
(f) Based on the results of each Auction for Series E Preferred Stock, the Auction Agent shall determine the aggregate number of such shares to be purchased and the aggregate number of such shares to be sold by Potential Holders and Existing Holders and, with respect to each Potential Holder and Existing Holder, to the extent that such aggregate number of shares to be purchased and such aggregate number of shares to be sold differ, determine to which other Potential Holder(s) or Existing Holder(s) they shall deliver, or from which other Potential Holder(s) or Existing Holder(s) they shall receive, as the case may be, Series E Preferred Stock. Notwithstanding any provision of the Auction Procedures to the contrary, in the event an Existing Holder or Beneficial Owner of Series E Preferred Stock with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of shares of Series E Preferred Stock that have been made in respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for Series E Preferred Stock that have been accepted in whole or in part shall constitute good delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Corporation nor the Auction Agent nor any affiliate of either shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial Owner or its respective Agent Member to deliver shares of Series E Preferred Stock or to pay for Series E Preferred Stock sold or purchased pursuant to the Auction Procedures or otherwise.
6. Transfer of Series E Preferred Stock.
Unless otherwise permitted by the Corporation, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose of Series E Preferred Stock only in whole shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with the procedures described in this Article II or to a Broker-Dealer; provided, however, that (a) a sale, transfer or other disposition of Series E Preferred Stock from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the Holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this paragraph 6 if such Broker-Dealer remains the Existing Holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to Auctions, the Broker-Dealer (or other Person, if permitted by the Corporation) to whom such transfer is made shall advise the Auction Agent of such transfer.
ARTICLE III
ABILITY OF BOARD OF DIRECTORS TO MODIFY THE ARTICLES
SUPPLEMENTARY
The calculation of Adjusted Value, Basic Maintenance Amount and the
elements of each of them and the definitions of such terms and elements may be
modified by action of the Board of Directors without further action by the
stockholders if the Board of Directors determines that such modification is
necessary to prevent a reduction in rating of the shares of Preferred Stock by
the Rating Agencies rating such shares at the request of the Corporation or is
in the best interests of the holders of Common Stock and is not adverse to the
Holders of Preferred Stock in view of advice to the Corporation by the
relevant Rating Agencies that such modification would not adversely affect the
then-current rating of the Series E Preferred Stock. To the extent the
Corporation is unable to obtain an opinion of counsel to the effect that
operation of the foregoing sentence is enforceable in the circumstances then
obtaining, the calculation of Adjusted Value, Basic Maintenance Amount and the
elements of each of them and the definitions of such terms and the elements
thereof shall be adjusted from time to time without further action by the
Board of Directors and the stockholders only to reflect changes made thereto
independently by a Rating Agency then rating Preferred Stock at the request of
the Corporation if such Rating Agency has advised the Corporation in writing
separately (a) of such adjustments and (b) that the revised calculation
definition would not cause such Rating Agency to reduce or withdraw its
then-current rating of the shares of Preferred Stock or any other Rating
Agency then rating Preferred Stock at the request of the Corporation to reduce
or withdraw its then-current rating. The adjustments contemplated by the
preceding sentence shall be made effective upon the time the Corporation
receives the notice from such Rating Agency to the effect specified in clause
(b) of the preceding sentence. Any such modification may be rescinded or
further modified by action of the Board of Directors and stockholders.
In addition, subject to compliance with applicable law, the Board of Directors may amend the definition of Maximum Rate to increase the applicable percentage by which the Reference Rate is multiplied to determine the Maximum Rate shown therein without the vote or consent of the Holders of shares of Preferred Stock, including the Series E Preferred Stock, or any other stockholder of the Corporation, after consultation with the Broker-Dealers, and with confirmation from each Rating Agency that immediately following any such increase the Corporation would meet the Basic Maintenance Test.
Notwithstanding the provisions of the preceding paragraph, to the extent permitted by law, the Board of Directors, without the vote of the Holders of the Series E Preferred Stock or any other capital stock of the Corporation, may amend the provisions of these Articles Supplementary to resolve any inconsistency or ambiguity or to remedy any formal defect so long as the amendment does not materially adversely affect any of the contract rights of holders of shares of the Series E Preferred Stock or any other capital stock of the Corporation or adversely affect the then current rating on the Series E Preferred Stock by any Rating Agency.
IN WITNESS WHEREOF, The Gabelli Equity Trust Inc. has caused these presents to be signed in its name and on its behalf by a duly authorized officer, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Corporation further acknowledge said instrument to be the corporate act of the Corporation, and state that to the best of their knowledge, information and belief under penalty of perjury the matters and facts herein set forth with respect to approval are true in all material respects, all on [__], 2003.
By
Name: Bruce Alpert
Title: President
Attest:
Name: James E. McKee
Title: Secretary
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Exhibit 99(k)(ii)
AUCTION AGENCY AGREEMENT
dated as of September __, 2003
Relating to
Series C Auction Rate Cumulative Preferred Stock
of
The Bank of New York, as Auction Agent
AUCTION AGENCY AGREEMENT
This Auction Agency Agreement (this "Agreement"), dated as of September __, 2003, is between The Gabelli Equity Trust Inc. (the "Corporation") and The Bank of New York, a New York banking corporation, as Auction Agent (as defined below).
The Corporation proposes to issue an aggregate of 2,000 preferred shares, par value $0.001 per share, liquidation preference $25,000 per share, designated as Series E Auction Rate Cumulative Preferred Shares (the "Preferred Shares"), pursuant to the Articles Supplementary (as defined below).
The Corporation desires that the Auction Agent perform certain duties as agent in connection with each Auction (as defined below) (in such capacity, the "Auction Agent"), and as the transfer agent, registrar, dividend paying agent and redemption price disbursing agent with respect to the Preferred Shares (in such capacity, the "Paying Agent"), upon the terms and conditions of this Agreement, and the Corporation hereby appoints The Bank of New York as said Auction Agent.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Corporation and the Auction Agent agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined By Reference to Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures, each of the following terms shall have the meaning ascribed to it below, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or participant in, the Securities Depository that will act on behalf of a Bidder.
(b) "Agreement" shall mean this Agreement.
(c) "Articles Supplementary" shall mean the Articles Supplementary Creating and Fixing the Rights of the Series E Auction Rate Cumulative Preferred Stock.
(d) "Auction" shall have the meaning specified in
Section 2.1 hereof.
(e) "Auction Procedures" shall mean the auction procedures constituting Article II of the Articles Supplementary as of the filing thereof.
(f) "Authorized Officer" of the Auction Agent shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a written communication to the Corporation.
(g) "Broker-Dealer Agreement" shall mean each agreement between the Auction Agent and a Broker-Dealer substantially in the form attached hereto as Exhibit A.
(h) "Commercial Paper Dealers" shall mean (i) Citigroup Capital Markets, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.; (ii) in lieu of any thereof, its respective affiliate or successor; and (iii) in the event that any of the foregoing shall cease to quote rates for commercial paper of issuers of the sort described above, in substitution therefor, a nationally recognized dealer in commercial paper of such issuers then making such quotations selected by the Corporation
(i) "Corporate Officer" shall mean the Chairman and Chief Executive Officer, the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Vice President, each Assistant Secretary and each Assistant Treasurer of the Corporation and every other officer or employee of the Corporation designated as a "Corporate Officer" for purposes hereof in a notice to the Auction Agent.
(j) "Preferred Shares" shall mean the preferred shares, par value $.001 per share, of the Corporation designated as its "Series E Auction Rate Cumulative Preferred Shares" and bearing such further designation as to series as the Board of Directors, as the case may be, of the Corporation or any committee thereof shall specify.
(k) "Rate Multiple" has the meaning provided in
Section 2.6.
(l) "Settlement Procedures" shall mean the Settlement Procedures attached hereto as Exhibit B.
(m) "U.S. Government Securities Dealers" has the meaning provided in Section 2.6(a)(v).
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of the Agreement:
(a) Words importing the singular number shall include the plural number and vice versa.
(b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of the Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto" and other words of similar import refer to the Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City time.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures.
(a) The Board of Directors of the Corporation has adopted a resolution appointing The Bank of New York as Auction Agent for purposes of the Auction Procedures. The Auction Agent hereby accepts such appointment and agrees that, on each Auction Date, it shall follow the procedures set forth in this Section 2 and the Auction Procedures for the purpose of determining the Applicable Rate of the Preferred Shares for any Dividend Period after the initial Dividend Period. Each periodic operation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance of Registry of Beneficial Owners.
(a) Not later than seven days prior to the first Auction Date for the Preferred Shares subject to an Auction, the Corporation shall provide the Auction Agent with a list of the Broker-Dealers. Not later than seven days prior to any Auction Date for the Preferred Shares for which any change in such list of Broker- Dealers is to be effective, the Corporation will notify the Auction Agent in writing of such change and, if any such change involves the addition of a Broker-Dealer to such list, shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement in the form of Exhibit A signed by such Broker- Dealer; provided, however, that if the Corporation proposes to designate any Special Dividend Period of the Preferred Shares pursuant to Section 4 of Article I of the Articles Supplementary, not later than 11:00 A.M. on the Business Day immediately preceding the last Auction Date prior to the first day of such Dividend Period or by such later time or date, or both, as may be agreed to by the Auction Agent, the Corporation shall provide the Auction Agent with a list of the Broker-Dealers for the Preferred Shares and a manually signed copy of each Broker-Dealer Agreement or a new Schedule A to a Broker-Dealer Agreement (which Schedule A shall replace and supersede any previous Schedule A to such Broker-Dealer Agreement) with each Broker-Dealer. The Auction Agent, as Agent of the Corporation, shall have entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the participation of any such Broker-Dealer in any Auction.
(b) In the event that any Auction Date for the Preferred Shares shall be changed after the Auction Agent shall have given the notice referred to in clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to the Broker-Dealers not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.
(c) (i) The Auction Agent shall maintain a registry of Persons that are Broker-Dealers, compiled initially on the date hereof, and that hold Preferred Shares for purposes of Auctions. The Auction Agent shall indicate thereon the identity of the Broker-Dealer that submitted the most recent Order in any Auction which resulted in such Existing Holder continuing to hold or purchasing the Preferred Shares. The Auction Agent shall keep such registry current and accurate based on the information provided to it from time to time by the Broker-Dealer. The Corporation shall provide or cause to be provided to the Auction Agent at or prior to the Date of Original Issue of the Preferred Shares a list of the initial Existing Holders of the Preferred Shares, the number of shares purchased by each such Existing Holder and the respective Broker-Dealer of each such Existing Holder or the affiliate thereof through which each such Existing Holder purchased such shares. The Auction Agent may rely upon, as conclusive evidence of the identities of the Existing Holders of Preferred Shares (A) such list, (B) a list of Holders as a result of Auctions, (C) notices from any Broker-Dealer as described in the first sentence of Section 2.2(c)(iii) hereof and (D) the results of any procedures approved by the Corporation that have been devised for the purpose of determining the identities of Existing Holders in situations where Preferred Shares may have been transferred without compliance with any restriction on the transfer thereof set forth in the Auction Procedures.
(ii) In the event of any partial redemption of the Preferred Shares and the Auction Agent's receipt of written notice of such partial redemption thereof, the Auction Agent shall, at least two Business Days prior to the next Auction, request each Broker-Dealer to provide the Auction Agent with a list of Persons who such Broker-Dealer believes should remain Existing Holders after such redemption based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction and with respect to each such Person, the number of Preferred Shares such Broker-Dealer believes are owned by such Person after such redemption. In the absence of receiving any such information from any Broker-Dealer, the Auction Agent may continue to treat the Existing Holders listed in its registry as the beneficial owners of the number of Preferred Shares shown in such registry.
(iii) The Auction Agent shall be required to register a transfer of Preferred Shares from an Existing Holder of such Preferred Shares only if such transfer is to another Existing Holder, or other Person if permitted by the Corporation, and only if such transfer is made (A) pursuant to an Auction, (B) the Auction Agent has been notified in writing (1) in a notice substantially in the form of Exhibit B to the Broker-Dealer Agreements by a Broker-Dealer of such transfer or (2) in a notice substantially in the form of Exhibit C to the Broker-Dealer Agreements by the Broker-Dealer of any Existing Holder, or other Person if permitted by the Corporation, that purchased or sold such Preferred Shares in an Auction of the failure of such Preferred Shares to be transferred as a result of such Auction or (C) pursuant to procedures approved by the Corporation that have been devised for the purpose of determining the identities of Existing Holders in situations where Preferred Shares may have been transferred without compliance with any restriction on the transfer thereof set forth in the Auction Procedures. The Auction Agent is not required to accept any such notice for an Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business Day preceding such Auction.
(d) The Auction Agent may, but shall have no obligation to,request the Broker-Dealers, as set forth in the Broker-Dealer Agreements, to provide the Auction Agent with a list of Persons who such Broker-Dealer believes should be Existing Holders based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction and with respect to each such Person, the number of Preferred Shares such Broker-Dealer believes to be owned by such Person. The Auction Agent shall keep confidential such registry of Existing Holders and shall not disclose the identities of the Existing Holders of such Preferred Shares to any Person other than the Corporation and the Broker-Dealer that provided such information; provided, however, that the Auction Agent reserves the right and is authorized to disclose any such information if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity or security satisfactory to it.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent with the consent of the Corporation, which consent shall not be unreasonably withheld. The Auction Agent shall give written notice of any such change to each Broker- Dealer. Such notice shall be given prior to the close of business on the Business Day immediately preceding the first Auction Date on which any such change shall be effective. The Auction Agent will follow the Bond Market Association's Market Practice U.S. Holiday Recommendations for shortened trading days for the bond markets (the "BMA Recommendation") unless the Auction Agent is instructed otherwise. In the event of a BMA Recommendation on an Auction Date the Submission Deadline will be 11:30 a.m., instead of 1:30 p.m., and as a result the notice set forth in Section 2.4 will occur earlier.
Time Event
By 9:30 A.M. Auction Agent advises the Corporation
and Broker-Dealers of (i) the
applicable Maximum Rate and (ii)
when applicable, the Reference Rate or
the Treasury Index Rate, used in
determining such Maximum Rate as set
forth in Section 2.6 hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers
as provided in Section 2(a) of the
Auction Procedures. Submission
Deadline is 1:30 P.M.
Not earlier than 3:00 P.M. Auction Agent makes determinations
pursuant to Section 4(a) of the
Auction Procedures.
By approximately 3:00 P.M. Auction Agent advises Corporation of
results of Auction as provided in
Section 4(b) of the Auction Procedures.
Submitted Bids and Submitted Sell
Orders are accepted and rejected in
whole or in part and Preferred Shares
allocated as provided in Section 5 of the
Auction Procedures. Auction Agent
gives notice of Auction results as set
forth in paragraph (a) of the Settlement
Procedures.
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The Auction Agent shall follow the notification procedures set forth in paragraph (a) of the Settlement Procedures.
2.4 Notice of Auction Results.
The Auction Agent will advise each Broker-Dealer who submitted a Bid or Sell Order in an Auction whether such Bid or Sell Order was accepted or rejected in whole or in part and of the Applicable Rate for the next Dividend Period for the related Preferred Shares by telephone or through its auction processing system as set forth in paragraph (a) of the Settlement Procedures.
2.5 Broker-Dealers.
(a) No later than 12:00 noon on each Auction Date for
Preferred Shares, the Corporation shall pay to the Auction Agent an amount in
cash equal to the aggregate fees payable to the Broker-Dealers pursuant to
Section 2.8 of the Broker-Dealer Agreements. The Auction Agent shall apply
such moneys as set forth in Section 2.8 of each such Broker-Dealer Agreement.
(b) The Corporation shall obtain the consent of the Auction Agent prior to selecting any Person to act as a Broker-Dealer, which consent shall not be unreasonably withheld.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed by the Corporation, provided that at least one Broker-Dealer Agreement would be in effect for the Preferred Shares after such termination.
(d) Subject to the Auction Agent's having consented to the selection of the relevant Broker-Dealer pursuant to Section 2.5(b) hereof, the Auction Agent shall from time to time enter into such Broker-Dealer Agreements in the form attached hereto as Exhibit A with one or more Broker-Dealers as the Corporation shall request, and shall enter into such schedules to any such Broker-Dealer Agreements as the Corporation shall request.
2.6 Information Concerning Rates.
If there is any change in the credit rating of
Preferred Shares by the rating agency (or substitute or successor rating
agencies), referred to in the definition of "Maximum Rate," that results in
any change in the applicable percentage of the "AA" Financial Composite
Commercial Paper Rate used to determine the Maximum Rate for Preferred Shares
(the "Rate Multiple"), the Corporation shall notify the Auction Agent in
writing of such change in the Rate Multiple prior to 12:00 noon on the
Business Day prior to the next Auction Date succeeding such change. On the
date hereof the Rate Multiple is 150%. If the Corporation designates all or a
portion of any dividend on Preferred Shares to consist of net capital gains or
other income taxable for Federal income tax purposes, it will indicate, in a
notice in the form of Exhibit H hereto to the Auction Agent pursuant to
Section 2.6 hereof, the Rate Multiple to be in effect for the Auction Date on
which the dividend rate for such dividend is to be fixed. In determining the
Maximum Rate on any Auction Date, the Auction Agent shall be entitled to rely
on the last Rate Multiple for Preferred Shares of which it has most recently
received notice from the Corporation (or, in the absence of such notice, the
percentage determined by reference to the definition of Rate Multiple), except
that if the Corporation shall have notified the Auction Agent of a Rate
Multiple to be in effect for an Auction Date in accordance with the preceding
sentence, the Rate Multiple in effect for the next succeeding Auction Date
shall be, unless the Corporation notifies the Auction Agent of a change in the
Rate Multiple for such succeeding Auction Date pursuant to this Section
2.6(a), the Rate Multiple that was in effect on the first preceding Auction
Date for Preferred Shares with respect to which the dividend, the rate for
which was fixed on such Auction Date, did not include any net capital gain or
other income taxable for Federal income tax purposes.
On each Auction Date, the Auction Agent shall determine the Maximum Rate. Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the Corporation and the Broker-Dealers of the Maximum Rate and the "AA" Financial Composite Commercial Paper Rate and Treasury Index Rate, as the case may be, used to make such determination.
2.7 Designation of Special Dividend Period.
(a) No designation is necessary for a Standard Dividend Period, which shall last seven calendar days.
(b) Pursuant to the Articles Supplementary, the Corporation may, at its option, designate a Special Dividend Period for the Preferred Shares in the manner described in Section 4 of Article I of the Articles Supplementary.
(i) If the Board of Directors proposes to
designate any Dividend Period as a Special Dividend Period, (A) the Corporation shall deliver to the Auction Agent a notice of such proposed Special Dividend Period in the form of Exhibit C hereto not less than seven Business Days (or two Business Days in the event the duration of the Dividend Period prior to the Special Dividend Period is less than eight Business Days) nor more than 30 Business Days prior to the first day of the Special Dividend Period and (B) the Auction Agent on behalf of the Corporation shall deliver such notice by first-class mail, postage prepaid, to each Existing Holder of Preferred Shares at the address set forth for such Existing Holder in the records of the Auction Agent and to the Broker-Dealers as promptly as practicable after its receipt of such notice from the Corporation.
(ii) If the Corporation determines to designate such Dividend Period as a Special Dividend Period, (A) the Corporation shall deliver to the Auction Agent a notice of such determination in the form of Exhibit D hereto not later than 3:00 P.M. on the second Business Day immediately preceding the first day of such proposed Special Dividend Period and (B) the Auction Agent shall deliver such notice to the Broker- Dealers promptly on such second Business Day.
(iii) If the Corporation shall deliver to the Auction Agent a notice not later than 3:00 P.M. on the second Business Day immediately preceding the first day of such proposed Special Dividend Period stating that the Corporation has determined not to exercise its option to designate such Dividend Period as a Special Dividend Period, in the form of Exhibit E hereto, or shall fail to timely deliver either such notice or a notice in the form of Exhibit D hereto, the Auction Agent shall deliver a notice in the form of Exhibit E hereto to the Broker-Dealers promptly on such second Business Day. If the Corporation fails to deliver either such notice provided in this Section 2.7(b) hereof by 3:00 P.M., the Corporation shall be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in this Section 2.7(b)(iii), thereby resulting in a Standard Dividend Period.
Such change in the length of any Dividend Period shall not occur if (1) an Auction for Preferred Shares shall not be held on such Auction Date for any reason or (2) an Auction for Preferred Shares shall be held on such Auction Date but Sufficient Clearing Bids for Preferred Shares shall not exist in such Auction.
2.8 Default.
In the event the Fund fails to deliver amounts to the Auction Agent in accordance with the Articles Supplementary, all amounts payable by the Fund with respect to such Default, or Default which has been cured, will be delivered to the Auction Agent as set forth in the Articles Supplementary.
2.9 Ownership of Shares of Preferred Shares.
Neither the Corporation nor any affiliate of the Corporation shall submit any Order in any Auction for Preferred Shares, except as set forth in the next sentence. Any Broker-Dealer that is an affiliate of the Corporation may submit Orders in Auctions, but only if such Orders are not for its own account. For purposes of this Section 2.9, a Broker-Dealer shall not be deemed to be an affiliate of the Corporation solely because one or more of the directors or executive officers of such Broker-Dealer or of any Person controlled by, in control of or under common control with such Broker-Dealer is also a director of the Corporation. The Auction Agent shall have no duty or liability with respect to the enforcement or otherwise of this Section 2.9.
2.10 Intentionally Omitted.
2.11 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Corporation, its agents, independent public accountants and counsel and the Broker-Dealers, access at reasonable times during normal business hours to review and make extracts or copies of all books, records, documents and other information concerning the conduct and results of Auctions (at no cost to the Auction Agent), provided that any such agent, accountant, counsel or Broker-Dealer shall furnish the Auction Agent with a letter from the Corporation requesting that the Auction Agent afford such person access. The Auction Agent shall maintain records relating to any Auction for a period of six years after such Auction, and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder.
3. The Auction Agent as Dividend and Redemption Price Disbursing Agent.
The Auction Agent, as dividend and redemption price
disbursing agent, shall pay to the Holders of Preferred Shares (i) on each
Dividend Payment Date, dividends on the Preferred Shares, (ii) on any date
fixed for redemption of Preferred Shares, the Redemption Price of the
Preferred Shares called for redemption and (iii) any late charge related to
any payment of dividends or Redemption Price, in each case after receipt of
the necessary funds from the Corporation with which to pay such dividends,
Redemption Price or late charge. The amount of dividends for any Dividend
Period to be paid by the Auction Agent to the Holders of Preferred Shares will
be determined by the Corporation as set forth in Section 2 of Article I of the
Articles Supplementary. The Redemption Price of any shares to be paid by the
Auction Agent to the Holders will be determined by the Corporation as set
forth in Section 3 of Article I of the Articles Supplementary. The Corporation
shall notify the Auction Agent in writing of a decision to redeem Preferred
Shares at least one Business Day prior to the date a notice of redemption is
required to be mailed to the Holders of the shares to be redeemed by paragraph
(b) of Section 3 of Article I of the Articles Supplementary and shall notify
the Auction Agent in writing on or prior to the 10th day preceding a Mandatory
Redemption Date. Such notice by the Corporation to the Auction Agent shall
contain the information required by paragraph (b) of Section 3 of Article I of
the Articles Supplementary to be stated in the notice of redemption required
to be mailed by the Corporation to such Holders.
4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Stock or Shares Certificates.
Upon the Date of Original Issue of Preferred Shares, one or more certificates representing all of the Preferred Shares issued on such date shall be issued by the Corporation and, at the request of the Corporation, registered in the name of Cede & Co. and countersigned by the Auction Agent.
4.2 Registration of Transfer of Shares.
Preferred Shares shall be registered solely in the name of the Securities Depository or its nominee.
4.3 Removal of Legend on Restricted Shares.
All requests for removal of legends on Preferred Shares indicating restrictions on transfer shall be accompanied by an opinion of counsel stating that such legends may be removed and such shares freely transferred, such opinion to be delivered under cover of a letter from a Corporate Officer authorizing the Auction Agent to remove the legend on the basis of said opinion.
4.4 Lost Stock or Share Certificates.
The Auction Agent shall issue and register replacement certificates for certificates represented to have been lost, stolen or destroyed upon the fulfillment of such requirements as shall be deemed appropriate by the Corporation and the Auction Agent, subject at all times to provisions of law, the By-Laws of the Corporation governing such matters and resolutions adopted by the Corporation with respect to lost securities. The Auction Agent shall not have any liability for loss incurred by the Corporation or by any other person as a result of the receipt or acceptance of fraudulent, forged or invalid certificates or securities (or certificates or securities which are otherwise not freely transferable or deliverable without encumbrance in any relevant market). The Auction Agent may issue new certificates in exchange for and upon the cancellation of mutilated certificates. Any request by the Corporation to the Auction Agent to issue a replacement or new certificate pursuant to this Section 4.4 shall be deemed to be a representation and warranty by the Corporation to the Auction Agent that such issuance will comply with such provisions of law and the By-Laws and resolutions of the Corporation.
4.5 Disposition of Cancelled Certificates; Record Retention.
The Auction Agent shall retain all stock or share certificates which have been cancelled in transfer or exchange and all accompanying documentation in accordance with applicable rules and regulations of the Securities and Exchange Commission for two calendar years. The Corporation shall also undertake to furnish to the Securities and Exchange Commission and to the Board of Governors of the Federal Reserve System, upon demand, at either the principal office or at any regional office, complete, correct and current hard copies of any and all such records.
4.6 Stock or Record Books.
For so long as the Auction Agent is acting as the transfer agent for Preferred Shares pursuant to this Agreement, it shall maintain a stock or record book containing a list of the Holders of the Preferred Shares. In case of any request or demand for the inspection of the stock or record books of the Corporation or any other books in the possession of the Auction Agent, the Auction Agent will notify the Corporation and secure instructions as to permitting or refusing such inspection; provided, however, the Auction Agent shall allow inspection of such books and records in its possession without the consent of the Corporation by its lawyers, accountants, regulators, auditors and other parties the Auction Agent deems necessary in order to carry out the normal operation of its business. The Auction Agent reserves the right, however, to exhibit the stock or record books or other books to any Person if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity or security satisfactory to it.
4.7 Return of Funds.
Any funds deposited with the Auction Agent hereunder by the Corporation for any reason, including but not limited to redemption of Preferred Shares, that remain unpaid after ninety days shall be repaid to the Corporation upon the written request of the Corporation.
5. Representations and Warranties.
5.1 Representations and Warranties of the Corporation
The Corporation represents and warrants to the Auction Agent that:
(a) the Corporation is duly organized and existing business Corporation in good standing under the laws of the State of its incorporation and has full corporate power or all requisite power to execute and deliver the Agreement and to authorize, create and issue the Preferred Shares, and the Preferred Shares when issued, will be duly authorized, validly issued, fully paid and nonassessable;
(b) the Agreement has been duly and validly authorized, executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation;
(c) the form of the certificate evidencing the Preferred Shares complies or will comply with all applicable laws of the State of its incorporation;
(d) when issued, the Preferred Shares will have been duly registered under the Securities Act of 1933, as amended, and no further action by or before any governmental body or authority of the United States or of any state thereof is required in connection with the execution and delivery of this Agreement or will have been required in connection with the issuance of Preferred Shares;
(e) the execution and delivery of this Agreement and the issuance and delivery of the Preferred Shares do not and will not conflict with, violate or result in a breach of, the terms, conditions or provisions of, or constitute a default under, the Articles of Amendment and Restatement (as amended) or the By- Laws of the Corporation, any law or regulation, any order or decree of any court or public authority having jurisdiction, or any mortgage, indenture, contract, agreement or undertaking to which the Corporation is a party or by which it is bound the effect of which conflict, violation, default or breach would be material to the Corporation or the Corporation and its subsidiaries taken as a whole; and
(f) no taxes are payable upon or in respect of the execution of this Agreement or the issuance of the Preferred Shares.
5.2 Representations and Warranties of the Auction Agent.
The Auction Agent represents and warrants to the Corporation that:
(a) The Auction Agent is duly organized and is validly existing as a banking corporation in good standing under the laws of the State of New York and has the corporate power to enter into and perform its obligations under this Agreement; and
(b) this Agreement has been duly and validly authorized, executed and delivered by the Auction Agent and constitutes the legal, valid and binding obligation of the Auction Agent, enforceable against the Auction Agent in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles.
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Corporation hereunder and owes no fiduciary duties to any Person except if provided by this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of gross negligence or willful misconduct on its part, the Auction Agent shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Agreement. The Auction Agent shall not be liable for any error of judgment resulting from the use or reliance on a source of information used in good faith unless the Auction Agent shall have been grossly negligent in the determination, calculation or declaration thereunder. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any communication authorized hereby and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document believed in good faith by it to be genuine. The Auction Agent shall not be liable for acting upon any telephone communication authorized hereby which the Auction Agent believes in good faith to have been given by the Corporation or by a Broker-Dealer. The Auction Agent may record telephone communications with the Corporation or with the Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its choice and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder.
(e) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation strikes, work stoppages, acts of war or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions or utilities, communications or computer (software and hardware) services, it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
(f) The Auction Agent shall not be: (i) required to, and does not, make any representations or have any responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own; (ii) obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with indemnity satisfactory to the Auction Agent; and (iii) responsible for or liable in any respect on account of the identity, Corporation or rights of any Person (other than itself and its agents and attorneys) executing or delivering or purporting to execute or deliver any document under this Agreement or any Broker-Dealer Agreement.
6.3 Compensation, Expenses and Indemnification.
(a) The Corporation shall pay the Auction Agent an annual fee as compensation for all services rendered by it under this Agreement and the Broker- Dealer Agreements as the Corporation and the Auction Agent have agreed to from time to time.
(b) The Corporation shall reimburse the Auction Agent upon its request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Auction Agent in accordance with any provision of this Agreement and the Broker-Dealer Agreements (including the compensation and the reasonable expenses and disbursements of its agents and counsel), except any expense or disbursement attributable to its gross negligence or willful misconduct. In no event shall the Auction Agent be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
(c) To the extent, if any, that a court of competent jurisdiction would enforce such agreement as not contrary to law or public policy, the Corporation hereby agrees to keep fully indemnified, on an after-tax basis, the Auction Agent (in its capacity as Auction Agent and, if applicable, in its capacity as transfer agent, registrar, dividend paying agent and redemption price disbursing agent and any other capacity contemplated by this Agreement) and its officers, directors, employees and agents for and hold them harmless against any loss, liability or expense incurred without gross negligence or willful misconduct on their part, arising out of or in connection with this Agreement and any Broker-Dealer Agreements, including the costs and expenses of defending itself against any such claim or liability in connection with its exercise or performance of any of its rights or duties hereunder and thereunder (which costs and expenses include the costs and expenses of the enforcement of this provision).
(d) The Auction Agent, in any of its various capacities, shall hold funds uninvested unless otherwise directed by the Corporation. In the event the Corporation directs the Auction Agent to invest funds in money market accounts or other investments agreed upon between the Auction Agent and the Fund, amounts of interest accrued to such invested funds will be returned to the Fund.
6.4 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or adequacy of the Agreement, the Broker-Dealer Agreements or the Preferred Shares except that the Auction Agent hereby represents that this Agreement has been duly authorized, executed and delivered by the Auction Agent and constitutes a legal and binding obligation of the Auction Agent.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be terminated as provided in this Section 7.1. The Corporation may terminate this Agreement at any time by so notifying the Auction Agent, provided that the Corporation has entered into an agreement in substantially the form of the Agreement with a successor Auction Agent. The Auction Agent may terminate this Agreement upon written notice to the Corporation on the date specified in such notice, which date shall be no earlier than 30 days after the date of delivery of such notice.
(b) Except as otherwise provided in this paragraph
(b), the respective rights and duties of the Corporation and the Auction Agent
under this Agreement with respect to the Preferred Shares shall cease upon
termination of the Agreement. The Corporation's representations, warranties,
covenants and obligations to the Auction Agent under Sections 5 and 6.3 hereof
shall survive the termination of the Agreement. Upon termination of this
Agreement, the Auction Agent shall, at the Corporation's request, promptly
deliver to the Corporation copies of all books and records maintained by it
with respect to Preferred Shares in connection with its duties hereunder.
7.2 Communications.
Except for (a) communications authorized to be by telephone pursuant to this Agreement or the Auction Procedures and (b) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below:
If to the Corporation, The Gabelli Equity Trust Inc.
One Corporate Center
Rye, New York 10580-1422
Attention: Bruce N. Alpert
Telephone No.: 212-921-5158
Telecopier No.: 914-921-5100
If to the Auction Agent, The Bank of New York
100 Church Street, 8th Floor
New York, New York 10286
Telephone: 212-437-6166
Telecopier: 212-437-6155
|
Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of the Corporation by a Corporate Officer and on behalf of the Auction Agent by telephone (confirmed by telecopy or in writing) by an Authorized Officer.
7.3 Entire Agreement.
This Agreement contains the entire agreement between the parties relating to, and superseding any prior agreement between the parties relating to, the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof except for agreements relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other than the Corporation, the Auction Agent and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged.
(b) Failure of either party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
7.6 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of each of the Corporation and the Auction Agent.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.
7.8 Disclosure of Information.
The Auction Agent agrees that it will not disclose or use
any "non- public personal information" about the Corporation's shareholders
other than such uses or disclosures as are permitted by Regulation S-P under
Section 504 of the Gramm Leach Biley Act ("Regulation S-P"). "Nonpublic
personal information" about a shareholder shall mean: (a) personally
identifiable financial information; (b) any list, description, or other
grouping of consumers that is derived from using any personally identifiable
information that is not publically available; and (c) any other information
that a customer or the Transfer Agent is prohibited from using or disclosing
pursuant to Regulation S-P.
7.9 Governing Law; Jurisdiction; and Waiver of Trial by Jury.
This Agreement shall be governed by, and interpreted and construed in accordance with, the substantive law of the State of New York. The parties agree that all actions and proceedings arising out of this Agreement or any transactions contemplated hereby shall be brought in the State of New York and, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such State. Each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this agreement or the transaction contemplated hereby.
THE GABELLI EQUITY TRUST INC.
THE BANK OF NEW YORK
[Auction Agency Agreement]
EXHIBIT A
FORM OF
BROKER-DEALER AGREEMENT
Exhibit B
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the procedures expected to be followed in connection with the settlement of each Auction and will be incorporated by reference in the Auction Agency Agreement and each Broker- Dealer Agreement. Nothing contained in this Exhibit B constitutes a representation by the Corporation that in each Auction each party referred to herein will actually perform the procedures described herein to be performed by such party.
(a) By approximately 3:00 p.m., New York City time, on each Auction Date, the Auction Agent shall notify by telephone or through its auction processing system the Broker-Dealers that participated in the Auction held on such Auction Date and submitted an order on behalf of any Existing Holder or Potential Holder of:
(i) the Applicable Rate fixed for the next succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker- Dealer") submitted a Bid or Sell Order on behalf of an Existing Holder, the number of shares, if any, of Preferred Shares to be sold by such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker- Dealer") submitted a Bid on behalf of a Potential Holder, the number of shares, if any, of Preferred Shares to be purchased by such Potential Holder;
(v) if the aggregate number of Preferred Shares to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate number of Preferred Shares to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and the name of the Agent Member with the Securities Depository, if any, of each such Buyer's Broker- Dealer) acting for one or more purchasers of such excess number of Preferred Shares and the number of such shares to be purchased from one or more Existing Holders on whose behalf such Broker-Dealer acted by one or more Potential Holders on whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of Preferred Shares to be purchased by all Potential Holders on whose behalf such Broker- Dealer submitted a Bid exceeds the aggregate number of Preferred Shares to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more Seller's Broker Dealers (and the name of the Agent Member, if any, of each such Seller's Broker-Dealer) acting for one or more sellers of such excess number of Preferred Shares and the number of such shares to be sold to one or more Potential Holders on whose behalf such Broker-Dealer acted by one or more Existing Holders on whose behalf each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction with respect to the Preferred Shares.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Holder or Potential Holder shall:
(i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer, instruct each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Holder's Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities Depository the amount necessary to purchase the number of Preferred Shares to be purchased pursuant to such Bid against receipt of such shares and advise such Potential Holder of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer, instruct each Existing Holder on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, to instruct such Existing Holder's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the number of Preferred Shares to be sold pursuant to such Order against payment therefor and advise any such Existing Holder that will continue to hold Preferred Shares of the Applicable Rate for the next succeeding Dividend Period;
(iii) advise each Existing Holder on whose behalf such Broker-Dealer submitted a Hold Order of the Applicable Rate for the next succeeding Dividend Period;
(iv) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order of the Auction Date for the next succeeding Auction; and
(v) advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a) above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential Holder or an Existing Holder shall, in such manner and at such time or times as in its sole discretion it may determine, allocated any funds received by it pursuant to (b)(i) above and any Preferred Shares received by it pursuant to (b)(ii) above among the Potential Holders, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Holders, if any, on whose behalf such Broker-Dealer submitted Bids that were accepted or Sell Orders, and any Broker-Dealer or Broker- Dealers identified to it by the Auction Agent pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder shall instruct its Agent Member as provided in (b)(i) or (ii) above, as the case may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of the Securities Depository shall instruct its Agent Member to (A) pay through the Securities Depository to the Agent Member of the Existing Holder delivering shares to such Broker- Dealer pursuant to (b)(ii) above the amount necessary to purchase such shares against receipt of such shares, and (B) deliver such shares through the Securities Depository to a Buyer's Broker-Dealer (or its Agent Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of the Securities Depository shall instruct its Agent Member to (A) pay through the Securities Depository to a Seller's Broker-Dealer (or its Agent Member) identified pursuant to (a) (vi) above the amount necessary to purchase the shares to be purchased pursuant to (b) (i) above against receipt of such shares, and (B) deliver such shares through the Securities Depository to the Agent Member of the purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in
(d) (i) above shall instruct the Securities Depository to execute the
transactions described under (b) (i) or (ii) above, and the
Securities Depository shall execute such transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct the Securities Depository to execute the transactions described in (d) (ii) above, and the Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct the Securities Depository to execute the transactions described in (d) (iii) above, and the Securities Depository shall execute such transactions.
(f) If an Existing Holder selling Preferred Shares in an Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to the Potential Holder on behalf of which it submitted a Bid that was accepted a number of whole Preferred Shares that is less than the number of shares that otherwise was to be purchased by such Potential Holder. In such event, the number of Preferred Shares to be so delivered shall be determined solely by such Broker- Dealer. Delivery of such lesser number of shares shall constitute good delivery. Notwithstanding the foregoing terms of this paragraph (f), any delivery or non- delivery of shares which shall represent any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the provisions of the Auction Agency Agreement and the Broker- Dealer Agreements.
EXHIBIT C
THE GABELLI EQUITY TRUST INC.
NOTICE OF PROPOSED CHANGE OF
LENGTH OF DIVIDEND PERIOD OF
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
("Preferred Shares")
The Gabelli Equity Trust Inc. (the "Corporation") may exercise its
option to designate the Dividend Period of its Preferred Shares commencing
[the first day of the Special Dividend Period] as a Special Dividend Period.
By 3:00 P.M., New York City time, on the second Business Day preceding the first day of such proposed Special Dividend Period, the Corporation will notify ___________________ of either (a) its determination to exercise such option, designating the length of such Special Dividend Period or (b) its determination not to exercise such option.
THE GABELLI EQUITY TRUST INC.
Dated: __________, 20__
EXHIBIT D
THE GABELLI EQUITY TRUST INC.
NOTICE OF CHANGE OF LENGTH OF DIVIDEND PERIOD
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that (the "Corporation") has determined to designate the Dividend Period of its Preferred Shares commencing on [the first day of the Special Dividend Period] as a Special Dividend Period.
Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary or Auction Agency Agreement, as the case may be.
The Special Dividend Period will be __________ calendar days.
The Auction Date for the Special Dividend Period is the Business Day immediately preceding the first day of such Special Dividend Period.
As a result of the Special Dividend Period designation, the amount of dividends payable on Preferred Shares during the Special Dividend Period will be based on a 360-day year.
The Special Dividend Period shall not commence if (a) an Auction for Preferred Shares shall not be held on such Auction Date for any reason or (b) an Auction for Preferred Shares shall be held on such Auction Date but Sufficient Clearing Bids for such shares shall not exist in such Auction.
The scheduled Dividend Payment Dates for the Preferred Shares during such Special Dividend Period will be _________________________.
[Special Redemption Provisions, if any]
THE GABELLI EQUITY TRUST INC.
Dated: __________, 20__
EXHIBIT E
THE GABELLI EQUITY TRUST INC.
NOTICE OF DETERMINATION NOT TO CHANGE
LENGTH OF DIVIDEND PERIOD OF
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that The Gabelli Equity Trust Inc. (the "Corporation") has determined not to exercise its option to designate a Special Dividend Period of its Preferred Shares and the next succeeding Dividend Period will be a Standard Dividend Period of seven calendar days.
THE GABELLI EQUITY TRUST INC.
Dated: __________, 20___
EXHIBIT F
THE GABELLI EQUITY TRUST INC.
NOTICE OF CURE OF DEFAULT ON
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that The Gabelli Equity Trust Inc. (the "Corporation") has cured its Default and paid the applicable late charge with respect to its Preferred Shares. The next Auction Date for the Preferred Shares is scheduled to be on _________________, 20___.
THE GABELLI EQUITY TRUST INC.
Dated: __________, 20___
EXHIBIT G
THE GABELLI EQUITY TRUST INC.
NOTICE OF CURE OF DEFAULT ON
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that The Gabelli Equity Trust Inc. (the "Corporation") has cured its Default and paid the applicable late charge with respect to its Preferred Shares. The next Auction Date for the Preferred Shares is scheduled to be on _________________, 20___.
THE GABELLI EQUITY TRUST INC.
Dated: __________, 20___
EXHIBIT H
THE GABELLI EQUITY TRUST INC.
NOTICE OF
[CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME](1)
DIVIDEND FOR
SERIES C AUCTION RATE CUMULATIVE PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that the amount of the dividend payable on ________________, 20____ for The Gabelli Equity Trust's Preferred Shares will be determined by the Auction to be held on _______________, 20___. Up to [$ A ](2) [$ B ](3) per share of the dividend payable on such date as determined by such Auction will consist of [capital gains](2) [ordinary income taxable for Federal income tax purposes](3). If the dividend amount payable on such date as determined by such Auction is less than [$ A ](2) [$ B ](3) per share, the entire amount of the dividend will consist of [capital gains](2) [ordinary income taxable for Federal income tax purposes](3). [To the extent such dividend amount exceeds [$ A ] per share, any excess up to [$ B ] per share will consist of ordinary income taxable for Federal income tax purposes.](4) Accordingly, the aforementioned composition of the dividend payable on _______________, 20___ should be considered in determining Orders to be submitted with respect to the Auction to be held on ________________, 20__. The Rate Multiple in effect for such Auction will be ____%.
THE GABELLI GLOBAL
MULTIMEDIA TRUST INC.
(1) Include language with respect to capital gains, taxable ordinary income or both, depending on the character of the designation to be made with respect to the dividend(s).
(2) Include bracketed material if a portion of the dividend will be designated capital gains.
(3) Include bracketed material if a portion of the dividend will be designated ordinary income taxable for Federal income tax purposes and no portion of the dividend will be designated capital gains.
(4) Include bracketed material if a portion of the dividend will be designated capital gains and a portion will be designated ordinary income taxable for Federal income tax purposes.
A = the maximum amount of capital gains allocated to the Preferred Shares to be included in such dividend, divided by the number of Preferred Shares.
B = the maximum amount of ordinary income taxable for Federal income tax purposes allocated to the Preferred Shares to be included in such dividend, divided by the number of preferred shares.
BROKER-DEALER AGREEMENT
between
THE BANK OF NEW YORK
as Auction Agent
and
[__]
as Broker-Dealer
Dated as of [__], 2003
Relating to
SERIES E AUCTION RATE CUMULATIVE PREFERRED STOCK OF
THE GABELLI EQUITY TRUST INC.
BROKER-DEALER AGREEMENT dated as of [__], 2003 (this "Agreement"), among (i) The Bank of New York, a New York banking corporation, as auction agent (the "Auction Agent") (not in its individual capacity but solely as agent) pursuant to authority granted to it in the Auction Agency Agreement, dated as of [__], 2003, (the "Auction Agency Agreement") between the The Gabelli Equity Trust Inc., (the "Corporation") and the Auction Agent and (ii) each broker-dealer whose name appears on the signature page hereof, as broker-dealer (together with its successors and assigns as such hereinafter referred to as "BD").
The Corporation intends to issue shares of Series E Auction Rate Cumulative Preferred Stock, par value $0.001 per share, liquidation preference $25,000 per share (the "Preferred Shares") pursuant to the Corporation's Articles Supplementary, as defined below. The shares of Preferred Shares shall be issued in book-entry form through the facilities of the Securities Depository. References to "Preferred Shares" in this Agreement shall refer only to the beneficial interests in the Preferred Shares unless the context otherwise requires.
The Auction Procedures require the participation of a Broker-Dealer.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction
1.1 Terms Defined by Articles Supplementary. Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary.
1.2 Terms Defined Herein. As used herein and in the Settlement Procedures, the following terms shall have the following meanings, unless the context otherwise requires:
"Agent Member" of any Person shall mean the member of, or participant in, the Securities Depositary that will act on behalf of a Bidder.
"Agreement" with respect to the Corporation shall mean this Agreement as may be amended in writing with written consent of the Corporation.
"Articles Supplementary" shall mean the Articles Supplementary Creating and Fixing the Rights of the Series E Auction Rate Cumulative Preferred Stock, as the same may be amended, supplemented or modified from time to time.
"Auction" shall have the meaning specified in Section 2.1 hereof.
"Auction Procedures" shall mean the auction procedures constituting Article II of the form of Articles Supplementary as of the filing thereof.
"Authorized Officer" of the Auction Agent shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a written communication to the Corporation.
"Corporate Officer" shall mean the Chairman and Chief Executive Officer, the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Vice President, each Assistant Secretary and each Assistant Treasurer of the Corporation and every other officer or employee of the Corporation designated as a "Corporate Officer" for purposes hereof in a notice to the Auction Agent.
"Preferred Shares" shall mean the preferred shares, par value $.001 per share, of the Corporation designated as its "Series E Auction Rate Cumulative Preferred Stock" and bearing such further designation as to series as the Board of Directors, as the case may be, of the Corporation or any committee thereof shall specify.
"Settlement Procedures" shall mean the Settlement Procedures attached to the Auction Agency Agreement as Exhibit B.
1.3 Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement:
Words importing the singular number shall include the plural number and vice versa.
The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect.
The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole.
All references herein to a particular time of day shall be to New York City time.
Section 1 and 2 hereof shall be read in conjunction with the Articles Supplementary and in the event of any conflict with the Articles Supplementary, the Articles Supplementary shall take precedence.
1.4 Warranties of BD. BD hereby represents and warrants as follows.
This Broker-Dealer Agreement has been duly authorized, executed and delivered by BD and that, assuming the due authorization, execution and delivery hereof by the Auction Agent, this Broker-Dealer Agreement constitutes a valid and binding agreement of BD, enforceable against it in accordance with its terms. BD's representations and warranties in this Section 1.4 shall survive the termination of this Agreement.
BD has policies and procedures in place that are reasonably designed to comply with its obligations under the provisions of the USA Patriot Act, the Bank Secrecy Act ("BSA") and any other anti-money laundering law, rule or regulation applicable to broker dealers under the BSA, or otherwise.
2. The Auctions
2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures.
On each Auction Date, the provisions of the Auction Procedures will be followed by the Auction Agent for the purpose of determining the Applicable Rate for the Preferred Shares for the next Dividend Period. Each periodic implementation of such procedures is hereinafter referred to as an "Auction."
All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were fully set forth herein.
BD agrees to act as, and assumes the obligations of and limitations and restrictions placed upon, a Broker-Dealer under this Agreement. BD understands that other Persons meeting the requirements specified in the definition of "Broker-Dealer" contained in Section 13 of Part I of the Articles Supplementary may execute a Broker-Dealer Agreement and participate as Broker-Dealers in Auctions.
BD acknowledges and agrees that each provision of the Auction Procedures that requires BD to perform an obligation or procedure is hereby incorporated herein by reference and that this Agreement shall constitute the Corporation's instruction, and BD hereby agrees, to perform such obligations and procedures without further request by or instructions from the Corporation.
BD may participate in Auctions for its own account if it is not an affiliate of the Corporation, unless the Corporation notifies all Broker-Dealers that they may no longer do so, in which case BD may continue to submit Hold Orders or Sell Orders for its own account. If BD is an affiliate of the Corporation, it may participate in Auctions, but not for its own account. The Auction Agent shall have no duty to monitor whether or not the BD has complied with the provisions of this Section 2.1(e).
2.2 Preparation for Each Auction.
Not later than 9:30 a.m. on each Auction Date for the Preferred Shares, the Auction Agent shall advise BD by telephone or other electronic means, and shall promptly confirm such advice in writing, of (i) the Maximum Rate and (ii) when applicable, the Reference Rate.
BD shall cause the Maximum Rate to be communicated as promptly as practicable to its customers who hold or may be interested in acquiring Preferred Shares.
As promptly as practicable after determining each Auction Date, but not later than 9:15 a.m. on the Business Day preceding such Auction Date, the Auction Agent shall notify BD, by such means as the Auction Agent deems practicable, of the scheduled date of such Auction Date. If the Auction Date for any Auction shall be changed after the Auction Agent has given such notice or the notice referred to in clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to BD not later than the earlier of (x) 9:15 a.m. on the new Auction Date, and (y) 9:15 a.m. on the original Auction Date. Thereafter, BD shall promptly notify customers of BD that are Existing Holders of such change in the Auction Date.
If required by applicable law, or requested by the Auction Agent, BD shall provide a list of Existing Holders based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction to the Auction Agent promptly after any date so requested by the Auction Agent. The Auction Agent shall keep confidential any such information, including information received as to the identity of Bidders in any Auction, and shall not disclose any such information so provided to any Person other than the other parties hereto, provided that the Auction Agent reserves the right to disclose any such information if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity satisfactory to it.
BD agrees to maintain a list of customers relating to the Preferred Shares and to use its best efforts, subject to existing laws and regulations, to contact the customers on such list whom BD believes may be interested in participating in the Auction on each Auction Date, as a Potential Holder, for the purposes set forth in the Auction Procedures. Nothing herein shall require BD to submit an Order for any customer in any Auction.
The Auction Agent's registry of Existing Holders of
Preferred Shares shall be conclusive and binding on BD.
BD may inquire of the Auction Agent between 3:00 p.m. on the Business Day
preceding an Auction for Preferred Shares and 9:30 a.m. on the Auction Date for
such Auction to ascertain the number of Preferred Shares in respect of which the
Auction Agent has determined BD to be an Existing Holder. If BD believes it is
the Existing Holder of fewer Preferred Shares than specified by the Auction
Agent in response to BD's inquiry, BD may so inform the Auction Agent of that
belief. BD shall not, in its capacity as Existing Holder of Preferred Shares,
submit Orders in such Auction in respect of Preferred Shares covering in the
aggregate more than the number of Preferred Shares specified by the Auction
Agent in response to BD's inquiry.
2.3 Auction Schedule; Method of Submission of Orders.
The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed at any time by the Auction Agent with the consent of the Corporation, which consent shall not be unreasonably withheld. The Auction Agent shall give written notice of any such change to BD which shall have the right to review such change. Such notice shall be received prior to the close of business on the Business Day immediately preceding the first Auction Date on which any such change shall be effective.
Time Event
---- -----
By 9:30 a.m. Auction Agent advises the Corporation and the
Broker-Dealer of (i) the applicable Maximum Rate
and (ii) when applicable, the Reference Rate or
the Treasury Index Rate as set forth in Section
2.2(a) hereof.
9:30 a.m. - 1:30 p.m. Auction Agent assembles information communicated
to it by Broker-Dealer as provided in Section
2(a) of the Auction Procedures. Submission
Deadline is 1:30 p.m.
Not earlier than Auction Agent makes determinations pursuant to
3:00 p.m. 4(a) of the Auction Procedures.
By approximately Auction Agent advises the Corporation of results
3:00 p.m. of Auction as provided in Section 4(b) of the
Auction Procedures. Submitted Bids and Submitted
Sell Orders are accepted and rejected in whole or
in part and Preferred Shares are allocated as
provided in Section 5 of the Auction Procedures.
Auction Agent gives notice of Auction results as
set forth in paragraph (a) of the Settlement
Procedures.
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BD may designate one or more individuals in its organization who will coordinate its procedures in connection with Auctions and purchases and sales of Preferred Shares.
BD agrees to handle its customers' orders in accordance with its duties under applicable securities laws and rules.
To the extent that pursuant to Section 5 of the Auction Procedures of the Corporation, BD continues to hold, sell or purchase a number of shares that is fewer than the number of shares in an Order submitted by BD to the Auction Agent in which BD designated itself as an Existing Holder or Potential Holder in respect of customer Orders, BD shall make appropriate pro rata allocations among its customers for which it submitted Orders of similar tenor. If as a result of such allocations, any Existing Holder would be entitled or required to sell, or any Existing Holder would be entitled or required to purchase, a fraction of a Preferred Share on any Auction Date, BD shall, in such manner as it shall determine in its sole discretion, round up or down the number of Preferred Shares to be purchased or sold on such Auction Date by any Existing Holder or Potential Holder on whose behalf BD submitted an Order so that the number of shares so purchased or sold by each such Existing Holder or Potential Holder on such Auction Date shall be whole shares.
BD shall submit Orders to the Auction Agent in writing in substantially the form attached hereto as Exhibit A prior to 1:00 p.m. on each Auction Date. BD shall submit separate Orders to the Auction Agent for each Potential Holder or Existing Holder on whose behalf BD is submitting an Order and shall not net or aggregate the Orders of Potential Holders or Existing Holders on whose behalf BD is submitting Orders. Any Order submitted by BD to the Auction Agent prior to the Submission Deadline on any Auction Date shall be irrevocable.
BD shall deliver to the Auction Agent a written notice, substantially in the form attached hereto as Exhibit B, of transfers of Preferred Shares made through BD by an Existing Holder to another Person other than pursuant to an Auction and a written notice, substantially in the form attached hereto as Exhibit C, of the failure of any Preferred Shares to be transferred to or by any Person that purchased or sold Preferred Shares through BD pursuant to an Auction. The Auction Agent is not required to accept any notice delivered pursuant to the terms of the foregoing sentence with respect to an Auction unless it is received by the Auction Agent by 3:00 p.m. on the Business Day immediately preceding the applicable Auction Date.
2.4 Notices.
On each Auction Date, the Auction Agent shall notify BD by telephone or facsimile (or other electronic means acceptable to both parties) of the results of the Auction as set forth in paragraph (a) of the Settlement Procedures. By approximately 11:30 a.m. on the Business Day immediately succeeding such Auction Date, the Auction Agent shall notify BD in writing of the disposition of all Orders submitted by BD in the Auction held on such Auction Date.
(b) BD shall notify each Existing Holder or Potential Holder on whose behalf BD has submitted an Order as set forth in paragraph (b) of the Settlement Procedures and take such other action as is required of BD pursuant to the Settlement Procedures.
2.5 Designation of Special Dividend Period.
If the Corporation delivers to its Auction Agent a notice of the Auction Date for the Preferred Shares of the Corporation for a Dividend Period thereof that next succeeds a Special Dividend Period, the Auction Agent shall deliver such notice to BD as promptly as practicable after its receipt of such notice from the Corporation.
If the Board of Directors of the Corporation proposes to designate any Dividend Period as a Special Dividend Period and the Corporation delivers to its Auction Agent a notice of such proposed Special Dividend Period in the form of Exhibit C to the Auction Agency Agreement, such Auction Agent shall deliver such notice to BD as promptly as practicable after its receipt of such notice from the Corporation.
If the Board of Directors of the Corporation determines to designate such Dividend Period as a Special Dividend Period, and the Corporation delivers to its Auction Agent a notice of such Special Dividend Period in the form of Exhibit D to the Auction Agency Agreement not later than 3:00 p.m. on the second Business Day next preceding the first day of such Dividend Period, such Auction Agent shall deliver such notice to BD promptly after being notified by the Corporation on such second Business Day.
If the Corporation shall deliver to its Auction Agent a notice not later than 3:00 p.m. on the second Business Day next preceding the first day of a proposed Special Dividend Period stating that the Corporation has determined not to exercise its option to designate such Dividend Period as a Special Dividend Period, in the form of Exhibit E to the Auction Agency Agreement, or shall fail to timely deliver either such notice or a notice in the form of Exhibit D to the Auction Agency Agreement, such Auction Agent shall deliver a notice in the form of Exhibit E to the Auction Agency Agreement to BD promptly after being notified by the Corporation on such second Business Day.
2.6 Intentionally Omitted.
2.7 Default.
If: (i) any Default shall have occurred with respect to Preferred Shares of the Corporation during any Dividend Period thereof, but, prior to 12:00 noon, New York City time, on the third Business Day next succeeding the date on which such Default occurred, such Default shall have been cured in accordance with Section 2.8 of the Auction Agency Agreement, then such Auction Agent shall deliver a notice in the form of Exhibit F to the Auction Agency Agreement by first-class mail, postage prepaid, to BD not later than one Business Day after its receipt of the payment from the Corporation curing such Default and such Late Charge; provided, however that no delivery of notice in the form of Exhibit F shall be required if, prior to one Business Day after its receipt of the payment from the Corporation, the Auction Agent has otherwise informed BD of its receipt of payment from the Corporation.
If any Default shall have occurred with respect to Preferred Shares of the Corporation during any Dividend Period thereof, and, prior to 12:00 noon, New York City time, on the third Business Day next succeeding the date on which such Default occurred, such Default shall not have been cured as described in Section 2.8 of the Auction Agency Agreement or the Corporation shall not have paid to the Auction Agent the applicable Late Charge described in Section 2.8 of the Auction Agency Agreement; then such Auction Agent shall deliver a notice in the form of Exhibit G to the Auction Agency Agreement to the Broker-Dealers not later than one Business Day after the receipt of the payment from the Corporation curing such Default and Late Charge.
2.8 Service Charge to Be Paid to BD.
No later than 12:00 noon on each Dividend Payment Date, the Auction Agent after each Auction will pay a service charge from funds provided by the Corporation to each Broker-Dealer on the basis of the purchase price of Preferred Shares placed by such Broker-Dealer at such Auction. The service charge shall be (i) in the case of any Dividend Period of less than 365 days, the product of (A) a fraction, the numerator of which is the number of days in such Dividend Period and the denominator of which is 365, times (B) 1/4 of 1%, times (C) $25,000 times (D) the aggregate number of Preferred Shares placed by such Broker-Dealer at such Auction and (ii) in the case of any Dividend Period of 365 days or more, the amount determined by mutual consent of the Corporation and any such Broker-Dealers and shall be based upon a selling concession that would be applicable to an underwriting of fixed or variable rate Preferred Shares with a similar final maturity or variable rate dividend period, respectively, at the commencement of the Dividend Period with respect to such Auction. For the purpose of this Section 2.8(a), Preferred Shares will be considered "placed" by a Broker-Dealer if such shares were (I) the subject of Hold Orders deemed to have been submitted to the Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its customers who are Beneficial Owners or (II) the subject of an order submitted by such Broker-Dealer that is (A) a Submitted Bid of an Existing Holder that resulted in such Existing Holder continuing to hold such shares as a result of the Auction, (B) a Submitted Bid of a Potential Holder that resulted in such Potential Holder purchasing such shares as a result of the Auction or (C) a valid Hold Order.
If the Corporation determines to change the rate at which the Broker-Dealer Fee accrues, the Corporation shall mail to the Auction Agent a notice thereof within two Business Days of such change. Any change in the Broker-Dealer fee rate shall be effective on the Auction Date next succeeding the Auction Agent's receipt of notice of such change.
2.9 Settlement.
If any Existing Holder selling Preferred Shares in an Auction
fails to deliver such Preferred Shares (by authorized book-entry), the BD of
any Person that was to have purchased Preferred Shares in such Auction may
deliver to such Person a number of Preferred Shares that is less than the
number of Preferred Shares that otherwise were to be purchased by such Person.
In such event, the number of Preferred Shares to be so delivered shall be
determined by BD. Delivery of such lesser number of Preferred Shares shall
constitute good delivery. Upon the occurrence of any such failure to deliver
Preferred Shares, BD shall deliver to the Auction Agent the notice required by
Section 2.3(f) hereof. Notwithstanding the foregoing provisions of this
Section 2.9(a), any delivery or non-delivery of Preferred Shares which
represents any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the
terms of Section 2.3(f) hereof. The Auction Agent shall have no duty or
liability with respect to enforcement of this Section 2.9(a).
Neither the Auction Agent nor the Corporation shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder or an Agent Member or any of them to deliver Preferred Shares or to pay for Preferred Shares sold or purchased pursuant to the Auction Procedures or otherwise.
Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event BD is an Existing Holder with respect to Preferred Shares and the Auction Procedures provide that BD shall be deemed to have submitted a Sell Order in an Auction with respect to such shares if BD fails to submit an Order in that Auction with respect to such shares, BD shall have no liability to any Person for failing to sell such shares pursuant to such a deemed Sell Order if (i) such shares were transferred by the beneficial owner thereof without notification of such transfer in compliance with the Auction Procedures or (ii) BD has indicated to the Auction Agent pursuant to Section 2.2(f) of this Agreement that, according to BD's records, BD is not the Existing Holder of such shares.
Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder of Preferred Shares with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefore, partial deliveries of Preferred Shares that have been made in respect of Potential Holders' Submitted Bids for Preferred Shares that have been accepted in whole or in part shall constitute good delivery to such Potential Holders.
3. The Auction Agent
3.1 Duties and Responsibilities.
The Auction Agent is acting solely as agent for the Corporation hereunder and owes no duties, fiduciary or otherwise, to any Person other than by reason of the Auction Agency Agreement.
The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and the Auction Agency Agreement, and no implied covenants or obligations shall be read into this Agreement, the Auction Agency Agreement, Auction Procedures or the Settlement Procedures against the Auction Agent.
In the absence of gross negligence or willful misconduct on its part, the Auction Agent shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Agreement. The Auction Agent shall not be liable for any error of judgment resulting from the use or reliance on a source of information used in good faith unless the Auction Agent shall have been grossly negligent in the determination, calculation or declaration thereunder. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts.
The Auction Agent shall not be: (i) required to, and does not, make any representations or have any responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own; (ii) obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with indemnity satisfactory to the Auction Agent; and (iii) responsible for or liable in any respect on account of the identity, trust or rights of any Person (other than itself and its agents and attorneys) executing or delivering or purporting to execute or deliver any document under this Agreement or any Broker-Dealer Agreement.
(e) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
3.2 Rights of the Auction Agent.
The Auction Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any communication authorized by this Agreement and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document believed by it to be genuine. The Auction Agent shall not be liable for acting upon any communication authorized by this Agreement (including, but not limited to, any made by telephone, telecopier or other means of electronic communication acceptable to the parties hereto) which the Auction Agent believes in good faith to have been given by the Corporation or by BD. The Auction Agent may record telephone communications with BD.
The Auction Agent may consult with counsel of its own choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.
The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care.
The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
The Auction Agent shall in no event be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
3.3 Auction Agent's Disclaimer. The Auction Agent makes no representation as to, and shall have no liability with respect to, the correctness of the recitals in, or the validity, adequacy or accuracy of, this Agreement, the Auction Agency Agreement, the Auction Procedures, the offering material used in connection with the offer and sale of the Preferred Shares or any other agreement or instrument executed in connection with the transactions contemplated herein or in any thereof.
4. Duties and Responsibilities of BD
BD undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement, the Auction Agency Agreement or Settlement Procedures against BD.
In the absence of gross negligence or willful misconduct on its part, BD shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under this Agreement. BD shall not be liable for any error of judgment resulting from the use or reliance on a source of information used in good faith and without gross negligence to make any determination, calculation or declaration hereunder. BD shall not be liable for any error of judgment made in good faith unless BD shall have been grossly negligent in ascertaining or failing to ascertain the pertinent facts.
BD shall not be: (i) required to, and does not, make any
representations or have any responsibilities as to the validity, accuracy,
value or genuineness of any signatures or endorsements, other than its own;
(ii) obligated to take any legal action hereunder that might, in its judgment,
involve any expense or liability, unless it has been furnished with indemnity
satisfactory to BD; and (iii) responsible for or liable in any respect on
account of the identity, trust or rights of any Person (other than itself and
its agents and attorneys) executing or delivering or purporting to execute or
deliver any document under this Agreement or any Broker-Dealer Agreement.
BD shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities, Internet or communications services; acts of civil or military authority; or governmental actions; it being understood that BD shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
5. Miscellaneous
5.1 Termination. (a) Any party may terminate this Agreement at any time upon five (5) days written notice to the other parties, which notice may be given by facsimile as provided in Section 5.3 hereof. This Agreement shall automatically terminate upon the redemption of all outstanding Preferred Shares or upon termination of the Auction Agency Agreement.
BD represents that it (or if BD does not act as Agent Member, one of its affiliates) shall make all dividend payments on the Preferred Shares available in same-day funds on each Dividend Payment Date to customers that use BD or affiliate as Agent Member.
5.2 Agent Member. BD is, and shall remain for the term of this Agreement, a member of, or participant in, the Securities Depository (or an affiliate of such a member or participant).
5.3 Communications. Except for (i) communications authorized to be by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with the Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (for the purposes of this Agreement, telecopy or other means of electronic communication acceptable to the parties shall be deemed to be in writing) and shall be given to such party, addressed to it, at its address, telecopy number set forth below and, where appropriate reference the particular Auction to which such notice relates:
If to BD, [__]
addressed:
If to the Auction The Bank of New York
Agent, addressed: 100 Church Street, 8th Floor
New York, New York 10286
Attention: Dealing and Trading Group
- Auction Desk
Telephone No.: 212-437-6166
Facsimile No.: 212-437-6155
If to the Corporation, The Gabelli Equity Trust Inc.
addressed: One Corporate Center
Rye, New York 10580-1422
Attention: Bruce N. Alpert
Telephone No.: 212-921-5158
Facsimile No.: 914-921-5100
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or such other address or facsimile number as such party may hereafter specify for such purpose by notice to the other parties. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of BD by a BD Officer, on behalf of the Auction Agent by an Authorized Officer and on behalf of the Corporation by a Corporate Officer. Telephone communications may be recorded.
5.4 Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof.
5.5 Benefits. Nothing in this Agreement, express or implied, shall give to any person, other than the Auction Agent, the Corporation and BD and their respective successors and permitted assigns, any benefit of any legal or equitable right, remedy or claim under this Agreement.
5.6 Amendment; Waiver.
This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of each of the parties hereto.
Failure of any party to this Agreement to exercise any right or remedy hereunder in the event of a breach of this Agreement by any other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
5.7 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of the parties hereto. This Agreement may not be assigned by any party hereto absent the prior written consent of the other parties.
5.8 Severability. If any clause, provision or section of this Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any remaining clause, provision or section hereof.
5.9 Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
5.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW, OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK). THE PARTIES AGREE THAT ALL ACTIONS AND PROCEEDINGS ARISING OUT OF THIS BROKER-DEALER AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE COURTS LOCATED IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, STATE OF NEW YORK. EACH PARTY WAIVES ANY OBJECTION THAT IT MAY HAVE THAT SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN THE COURTS LOCATED IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK AND STATE OF NEW YORK WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. EACH OF THE PARTIES HERETO ALSO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written.
THE BANK OF NEW YORK
as Auction Agent
Title:
[Broker-Dealer Agreement]
Exhibit A
To BROKER-DEALER
AGREEMENT
AUCTION BID FORM
(Submit only one Order on this Order Form)
THE GABELLI EQUITY TRUST INC.
Series E Auction Rate Cumulative Preferred Stock ("Preferred Shares")
To: The Bank of New York Date of Auction ______________
100 Church Street, 8th Floor
New York, New York 10286
|
Attention: Dealing and Trading Group - Auction Desk
Telephone No.: 212-437-6166
Telecopier No.: 212-437-6155
The undersigned Broker-Dealer submits the following Order on behalf of the Bidder listed below:
Name of Bidder: __________________________________
Bidder placed the Order listed below covering the number of shares indicated (complete only one blank):
_________________ number of Preferred Shares now held by
Bidder (an Existing Holder), and the Order is a (check one):
|_| Hold Order; or
|_| Bid at a rate of ____%; or
|_| Sell Order;
-- or -
_________________ number of Preferred Shares not now held by Bidder (a Potential Holder), and the Order is a Bid at a rate of ______%
Notes:
(1) If submitting more than one Bid for one Bidder, use additional Order Forms.
(2) If one or more Bids covering in the aggregate more than the outstanding number of Preferred Shares held by any Existing Holder are submitted, such Bids shall be considered valid in the order of priority set forth in the Auction Procedures.
(3) A Hold or Sell Order may be placed only by an Existing Holder covering a number of Preferred Shares not greater than the number of Preferred Shares currently held by such Existing Holder.
(4) Potential Holders may make Bids only, each of which must specify a rate. If more than one Bid is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal point (.001 of 1%).
(6) An Order must be submitted in whole Preferred Shares with an aggregate liquidation preference of $25,000.
Name of Broker-Dealer:_______________________ By:__________________________
Exhibit B
To BROKER-DEALER
AGREEMENT
(To be used only for transfers made other than pursuant to an Auction)
TRANSFER FORM
THE GABELLI EQUITY TRUST INC.
Series E Auction Rate Cumulative Preferred Stock ("Preferred Shares")
We are (check one):
|_| the Existing Holder named below; or
|_| the Broker-Dealer for such Existing Holder; or
|_| the Agent Member for such Existing Holder.
We hereby notify you that such Existing Holder will transfer ___ Preferred Shares to ____________________.
GABELLI EQUITY TRUST INC.
------------------------------------------------ -------------------------------
------------------------------------------------ -------------------------------
By: ___________________________
-------------------------------
Name:
Title:
------------------------------------------------ -------------------------------
------------------------------------------------ -------------------------------
(Name of Existing Holder)
------------------------------------------------ -------------------------------
------------------------------------------------ -------------------------------
(Name of Broker-Dealer)
------------------------------------------------ -------------------------------
------------------------------------------------ -------------------------------
(Name of Agent Member)
------------------------------------------------ -------------------------------
------------------------------------------------ -------------------------------
By: ___________________________
Name:
Title:
------------------------------------------------
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Exhibit C
To BROKER-DEALER
AGREEMENT
(To be used only for failures to deliver Preferred Shares sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
THE GABELLI EQUITY TRUST INC.
Series E Auction Rate Cumulative Preferred Stock ("Preferred Shares")
Complete either I. or II.
I. We are a Broker-Dealer for ______________ (the "Purchaser"), which purchased ____ Preferred Shares in the Auction held on __________________ from the seller of such Preferred Shares.
II. We are a Broker-Dealer for _____________ (the "Seller"), which sold ____ Preferred Shares in the Auction held on ____________________ to the purchaser of such Preferred Shares.
We hereby notify you that (check one):
__________ the Seller failed to deliver such Preferred Shares to
the Purchaser; or
__________ the Purchaser failed to make payment to the Seller upon
delivery of such Preferred Shares.
Name: ______________________________
(Name of Broker-Dealer)
-------------------- -----------------------------------------------------------
-------------------- -----------------------------------------------------------
By: ______________________________
Printed Name:
|
Title:
Capitalized terms used in this letter, unless otherwise defined herein, shall have the meanings set forth in the Articles Supplementary Creating and Fixing the Rights of the Series E Auction Rate Cumulative Preferred Stock, as the same may be amended, supplemented or modified from time to time.
(Name of Purchaser)
By: _____________________________
Name:
Title:
Address: ________________________
Dated:
The Depository Trust Company A subsidiary of The Depository Trust & Clearing Corporation
BLANKET ISSUER LETTER OF REPRESENTATIONS
[To be Completed by Issuer]
The Depository Trust Company
General Counsel's Office; 49th Floor
55 Water Street
New York, NY 10041-0099
Ladies and Gentlemen:
This letter sets forth our understanding with respect to all issues (the "Securities") that Issuer shall request be made eligible for deposit by The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and to act in accordance with DTCs Rules with respect to the Securities, Issuer represents to DTC that Issuer will comply with the requirements stated in DTCs Operational Arrangements, as they may be amended from time to time.
Note: Very truly yours,
----
Schedule A contains statements that DTC believes accurately
describe DTC, the method of effecting book-entry transfers The Gabelli Equity Trust Inc.
of securities distributed through DTC, and certain related -------------------------------------------------------------
matters. (Issuer)
By:
----------------------------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY Bruce N . Alpert
-------------------------------------------------------------
(Print Name)
By:
-------------------------------------------------
One Corporate Center
-------------------------------------------------------------
(Street Address)
Rye, New York 10580-1422
-------------------------------------------------------------
(City) (State) (Country) (Zip Code)
(914) 921-5100
-------------------------------------------------------------
(Phone Number)
Balpert@gabelli.com
-------------------------------------------------------------
(E-mail Address)
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SCHEDULE A
(To Blanket Issuer Letter of Representations)
1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If, however, the aggregate principal amount of [any] issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.]
2. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.]
[6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTCs practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.]
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTCs practice is to credit Direct Participants' accounts upon DTCs receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC [nor its nominee], Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to
[Tender/Remarketing] Agent, and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to [Tender/Remarketing] Agent. The requirement
for physical delivery of Securities in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership
rights in the Securities are transferred by Direct Participants on DTC's
records and followed by a book- entry credit of tendered Securities to
[Tender/Remarketing] Agent's DTC account.]
10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
CERTIFICATE NUMBER
NUMBER OF SHARES
1 3,000,000
THE GABELLI EQUITY TRUST INC.
a Maryland corporation
__% Series D Cumulative Preferred Stock $.001 Par Value Per Share $25.00 Liquidation Preference Per Share
Cusip No.
This certifies that Cede & Co. is the owner of 3,000,000 fully paid and non-assessable Shares of ___% Series D Cumulative Preferred Stock, par value $.001 per share, liquidation preference $25.00 per share, of The Gabelli Equity Trust Inc. (the "Fund") transferable only on the books of the Fund by the holder thereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the transfer agent and registrar.
Upon request, and without charge, the Fund will furnish a full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitation as to dividends, qualifications, and terms and conditions of redemption of the securities represented by this Certificate.
IN WITNESS WHEREOF, the Fund has caused this Certificate to be signed by its duly authorized officers this day of September 2003.
By:_________________________ By:__________________________ Authorized Signature Name: Bruce Alpert Title: President
Attest:_________________________ Name: James McKee Title: Secretary
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OF STOCK AUTHORIZED TO BE ISSUED AND, WITH RESPECT TO THE CLASSES OF STOCK WHICH MAY BE ISSUED INA SERIES, THE VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SUCH SERIES, SO FAR AS THE SAME HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MASSACHUSETTS AND NEW YORK, NEW YORK
TRANSFER FORM
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers _______ Shares of Series D Cumulative Preferred Stock represented by this Certificate unto _______________ , and does hereby irrevocably constitute and appoint ___________________________ attorney to transfer said Shares on the books of the within named Fund with full power of substitution in the premises.
Dated: _____________________, _______
In presence of:
Shares of Series D Cumulative Preferred Stock evidenced by this Certificate may be sold, transferred or otherwise disposed of only pursuant to the provisions of the Fund's Articles Supplementary Creating and Fixing the Rights of the Series D Cumulative Preferred Stock, a copy of which may be obtained at the office of the State Department of Assessments and Taxation of Maryland.
The Fund will furnish information about the restrictions on transferability to any stockholder upon request and without charge. Any such request should be addressed to the Secretary of the Fund.
The Fund will furnish to any stockholder on request and without charge a full statement of the designations, and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class authorized to be issued, the differences in the relative rights and preferences between shares of any series of any authorized preferred or special class to the extent they have been set, and the authority of the Board of Directors to classify unissued shares and to set the relative rights and preference thereof and of any subsequent series of such preferred or special classes. Any such request should be addressed to the Secretary of the Fund.
Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Fund or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
CERTIFICATE NUMBER NUMBER OF SHARES
1 2,000
THE GABELLI EQUITY TRUST INC.
a Maryland corporation
Series E Auction Rate Cumulative Preferred Stock $.001 Par Value Per Share $25,000 Liquidation Preference Per Share
Cusip No.
This certifies that Cede & Co. is the owner of 2,000 fully paid and non-assessable Shares of Series E Auction Rate Cumulative Preferred Stock, par value $.001 per share, liquidation preference $25,000 per share, of The Gabelli Equity Trust Inc. (the "Fund") transferable only on the books of the Fund by the holder thereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the transfer agent and registrar.
Upon request, and without charge, the Fund will furnish a full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitation as to dividends, qualifications, and terms and conditions of redemption of the securities represented by this Certificate.
IN WITNESS WHEREOF, the Fund has caused this Certificate to be signed by its duly authorized officers this day of September, 2003.
____________________________,
As Transfer Agent and Registrar THE GABELLI EQUITY TRUST INC.
By:_________________________ By:__________________________
Authorized Signature Name: Bruce Alpert
Title: President
Attest:______________________
Name: James McKee
Title: Secretary
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THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OF STOCK AUTHORIZED TO BE ISSUED AND, WITH RESPECT TO THE CLASSES OF STOCK WHICH MAY BE ISSUED INA SERIES, THE VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SUCH SERIES, SO FAR AS THE SAME HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
SERIES E AUCTION RATE CUMULATIVE PREFERRED SHARES MAY BE TRANSFERRED ONLY (A) PURSUANT TO AN ORDER PLACED IN AN AUCTION, (B) TO OR THROUGH A BROKER-DEALER OR (C) TO THE FUND OR ANY AFFILIATE. NOTWITHSTANDING THE FOREGOING, A TRANSFER OTHER THAN PURSUANT TO AN AUCTION WILL NOT BE EFFECTIVE UNLESS THE SELLING EXISTING HOLDER OR THE AGENT MEMBER OF SUCH EXISTING HOLDER (IN THE CASE OF AN EXISTING HOLDER WHOSE SHARES ARE LISTED IN ITS OWN NAME ON THE BOOKS OF THE AUCTION AGENT), OR THE BROKER-DEALER OR AGENT MEMBER OF SUCH BROKER-DEALER (IN THE CASE OF A TRANSFER BETWEEN PERSONS HOLDING SHARES THROUGH DIFFERENT BROKER-DEALERS), ADVISES THE AUCTION AGENT OF SUCH TRANSFER.
TRANSFER FORM
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers _______ Shares of Series E Auction Rate Cumulative Preferred Stock represented by this Certificate unto _______________ , and does hereby irrevocably constitute and appoint ___________________________ attorney to transfer said Shares on the books of the within named Fund with full power of substitution in the premises.
Dated: _____________________, _______
In presence of:
Shares of Series E Auction Rate Cumulative Preferred Stock evidenced by this Certificate may be sold, transferred or otherwise disposed of only pursuant to the provisions of the Fund's Articles Supplementary Creating and Fixing the Rights of the Series E Auction Rate Cumulative Preferred Stock, a copy of which may be obtained at the office of the State Department of Assessments and Taxation of Maryland.
The Fund will furnish information about the restrictions on transferability to any stockholder upon request and without charge. Any such request should be addressed to the Secretary of the Fund.
The Fund will furnish to any stockholder on request and without charge a full statement of the designations, and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class authorized to be issued, the differences in the relative rights and preferences between shares of any series of any authorized preferred or special class to the extent they have been set, and the authority of the Board of Directors to classify unissued shares and to set the relative rights and preference thereof and of any subsequent series of such preferred or special classes. Any such request should be addressed to the Secretary of the Fund.
Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Fund or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
Exhibit 99(n)(i)
We hereby consent to the incorporation by reference in this Registration Statement on Form N-2 of our report dated February 13, 2003, relating to the financial statements and financial highlights of The Gabelli Equity Trust Inc. which appear in the December 31, 2002 Annual Report to Shareholders of The Gabelli Equity Trust Inc., which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Experts", "Counsel and Independent Accountants" and "Financial Statements" in the Prospectus and Statement of Additional Information incorporated by reference in such Registration Statement.
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York September 30, 2003 |